{"id":608051,"date":"2023-10-13T00:00:00","date_gmt":"2023-10-13T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2023\/10\/13\/inflation-surges-and-several-downgrades-to-our-banks\/"},"modified":"2023-10-13T00:00:00","modified_gmt":"2023-10-13T00:00:00","slug":"inflation-surges-and-several-downgrades-to-our-banks","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2023\/10\/13\/inflation-surges-and-several-downgrades-to-our-banks\/","title":{"rendered":"Inflation surges and several downgrades to our banks"},"content":{"rendered":"

Happy Friday, ladies and gentlemen.<\/strong> It\u2019s been\u2026 quite the week with the news cycle going full throttle at home and in the region, so we hope you all get a chance to wind down before we\u2019re all back at it again. <\/p>\n

Come out of your shell and express yourself better with our guide to acting workshops in<\/strong> Cairo.<\/strong> Being a regional hub of theater and cinema talent, Egypt has a wide range of acting establishments to train amateurs, professionals and those seeking to hone their communication skills. Our picks will have a venue for everyone, whether they are looking to make it to the big (or small) screen, a stage \u2014 or just cultivate a new skill. <\/p>\n

Enterprise Weekend comes out each Friday at 9:00am CLT.<\/strong> We\u2019ll be back on Sunday at 6am with EnterpriseAM. Until then: Enjoy the weekend.<\/p>\n

LAST WEEK IN 3 MINS-<\/strong><\/p>\n

We had another macro-heavy news week on the domestic front<\/strong>, with several macro updates, coupled with more downgrades of our economic performance forecasts and ratings. Regionally, Israel\u2019s war against Palestine dominated global headlines. <\/p>\n

ECONOMY- <\/strong><\/p>\n

#1- Inflation hit an <\/strong>all-time high of 38%<\/a><\/strong> y-o-y in September <\/strong>due to the FX shortage and successive currency devaluations. Consumer prices in urban areas accelerated to 38% y-o-y from 37.4% in August, making September the fourth consecutive month of record highs.<\/p>\n

#2- The IMF downgraded its 2024 Egypt growth <\/strong>outlook to 3.6%<\/a><\/strong>from its previous 4.1% forecast in July. This is the second time it has lowered its 2024 outlook this year, cutting it to 4.1% from 5.0% in July, citing the shortage of foreign currency and dwindling investor confidence.<\/p>\n

\u2026and is urging Egypt to move forward with another currency devaluation <\/strong>or risk the country \u201cbleeding\u201d reserves, IMF Managing Director Kristalina Georgieva said in an interview.<\/a> <\/p>\n

#3- The World Bank sees Egypt\u2019s growth slowing in FY 2023-24 <\/strong>as rising borrowing costs and heightened inflation continue to squeeze economic activity. The lender expects economic growth to slow to 3.7%<\/a> in the current fiscal year from a projected 4.2% in FY 2022-23, 0.3 percentage points lower than its previous forecast in June. <\/p>\n

#4- <\/strong>Moody\u2019s downgraded<\/a><\/strong> Egypt\u2019s sovereign credit rating further into junk territory<\/strong> due to worsening debt affordability and an intensifying FX crunch that have raised concerns over our ability to meet repayments. This is seven rungs into junk territory and four above default.<\/p>\n

\u2026and <\/strong>followed up with a downgrade<\/a><\/strong> of five of our banks\u2019 long-term deposit ratings<\/strong> for the second time in a year. The ratings agency downgraded state-owned lenders Banque Misr, the National Bank of Egypt, and Banque du Caire, along with private-sector bank CIB to Caa1 from B3, seven notches into junk territory and four above default. Intesa Sanpaolo\u2019s Bank of Alexandria rating was also downgraded to B3 from B2.<\/p>\n

#5-<\/strong>Several banks have banned the use of EGP debit cards for any FX spending: <\/strong>The National Bank of Egypt, Arab Bank, Banque Misr, Emirates NBD, National Bank of Kuwait in Egypt, AAIB, CIB and Arab International Bank put an end<\/a> to the use of debit cards linked to EGP accounts for any foreign currency spending.<\/p>\n

#6- Egypt generated a current account surplus in 4Q 2022-23 <\/strong>on the back of falling imports and rising tourism and Suez Canal revenues. The current account turned to a USD 560 mn surplus<\/a> during the April-June quarter, compared to a USD 3.0 bn deficit in 4Q 2021-22 and a USD 3.5 bn deficit in the previous quarter.<\/p>\n

#7- Businesses reached an agreement with the government to deliver 15-25% price cuts <\/strong>on key food staples:<\/strong> The government and private-sector food producers and traders will both reduce prices of 10 food<\/a> items by 15-25% starting Saturday, Prime Minister Mostafa Madbouly said at a press conference last week.<\/p>\n

WAR WATCH-<\/strong><\/p>\n

Israel <\/strong>declared war<\/a><\/strong> on Hamas after the resistance group launched a surprise ground <\/strong>attack in Israel on Saturday that<\/strong>killed hundreds of Israelis\u2026<\/strong> The Israeli government has put in place a total blockade on Gaza, restricting access to food, water and electricity from reaching the strip\u2019s 2.2 mn residents. So far over 900people in Gaza have died in the strikes and 4.6k are wounded. The death toll in Israel from Saturday\u2019s attack by Hamas is now over 1k.<\/p>\n

\u2026and it\u2019s looking likely that the war is going to escalate: <\/strong>The Israeli military has amassed tens of thousands of reservists over the past week, which several news outlets take as partial indication that a full-scale ground offensive is \u201cinevitable.\u201d<\/a> <\/p>\n

Tensions on the Egypt-Gaza border have been brewing:<\/strong> Israeli air strikes and artillery targeted the Rafah crossing on the Sinai-Gaza border three times in nearly 48 hours this week, preventing Gazans from crossing the border and aid shipments from reaching the besieged Gaza strip. The Israeli military also threatened to attack any fuel trucks we send into Gaza.<\/p>\n

Egypt has been scrambling to de-escalate fighting between Israel and Hamas: <\/strong>President Abdel Fattah El Sisi called the situation \u201chighly dangerous\u201d and confirmed that Egypt is working with other countries<\/a> to broker an end to the violence. <\/p>\n

ENERGY-<\/strong><\/p>\n

#1- Egypt\u2019s gas imports dropped 20% after Chevron halted Tamar production: <\/strong>The closure of the Tamar gas field in the Mediterranean, which came at the request of Israel\u2019s energy ministry over security concerns, caused Israel\u2019s gas shipments to Egypt to slump to 650 mn cubic feet per day<\/a> from 800 mn cf\/d. <\/p>\n

ALSO- Chevron suspended gas exports to Egypt via the East Mediterranean Gas (EMG)<\/strong> pipeline<\/strong> and is routing supplies<\/a> instead through the Arab Gas Pipeline that links Israel, Jordan and Egypt. <\/p>\n

#2- Local green methanol on the horizon: <\/strong>Egypt signed a framework agreement<\/a> with Maersk\u2019s new green methanol company C2X to produce the green fuel in the Suez Canal Economic Zone. <\/p>\n

PRIVATIZATION WATCH-<\/strong><\/p>\n

#1- Maersk is one step closer to acquiring half of the 545 MW Zafarana wind farm<\/strong> after signing a framework agreement<\/a> with the government. The Madbouly government and the Danish shipping giant are now in the final stages of negotiating the value of the 51% stake. The transaction could potentially close by the end of this year.<\/p>\n

ELECTIONS 2023-<\/strong><\/p>\n

#1- A third candidate joined the presidential race: <\/strong>The Wafd Party\u2019s Abdel Sanad Yamama filed paperwork<\/a> with the National Elections Authority to run in the upcoming presidential election. <\/p>\n

M&A WATCH-<\/strong><\/p>\n

#1- Dice founders placed their bid to reacquire nearly half of the company: <\/strong>The founders of EGX-listed clothing company Dice Sports and Casual Wear submitted a mandatory tender offer<\/a> to purchase more than 838 mn of its shares. The transaction would give them control of c. 80% of the company\u2019s stock. <\/p>\n

LEGISLATION-<\/strong><\/p>\n

#1- House committees signed off on a spate of key bills:<\/strong> The proposed cut to income tax, the second round of the expat car import scheme, and the decision to allow Abu Dhabi Ports to develop Safaga port were all approved<\/a> by House committees last week.<\/p>\n

DIPLOMACY-<\/strong><\/p>\n

We\u2019re getting less than USD 1 bn in US military aid this year:<\/strong> The new chairman of the US Senate Foreign Relations Committee, Ben Cardin decided to withhold<\/a> USD 320 mn of human rights-contingent military aid destined for Egypt following the indictment of previous chair Senator Bob Menendez over allegedly accepting bribes to covertly aid the country. <\/p>\n

WHAT\u2019S HAPPENING NEXT WEEK-<\/strong><\/p>\n

<\/p>\n

The World Bank and IMF <\/strong>annual meetings<\/a><\/strong> wrap up on Sunday<\/strong>, after kicking off this past week in Marrakech, Morocco.<\/p>\n

The House of Representatives reconvenes on Sunday<\/strong>after going on recess earlier this week.<\/p>\n

The <\/strong>Egypt Automotive Aftermarket Exhibition<\/a><\/strong>takes place from Sunday through Tuesday<\/strong>at the Cairo International Convention Center.<\/p>\n

NOT HAPPENING NEXT WEEK-<\/strong><\/p>\n

The sixth edition of El Gouna Film Festival (GFF), which <\/strong>was postponed to 27 October<\/strong>and will wrap on 2 November.<\/p>\n

Check out our full calendar on the web<\/a><\/strong> for a comprehensive listing of upcoming news events, national holidays and news triggers.<\/p>\n

YOUR MOST CLICKED LINKS-<\/strong><\/p>\n