Beltone: Egypt Characterized by Sustainable Growth Against Emerging Markets

Beltone Financial stated on Saturday that Egypt is still characterized by sustainable development of its macroeconomic indicators and GDP growth by more than 5% compared to other similar emerging markets, which increases the attractiveness of the Egyptian economy and investment in debt instruments issued by the government.

The investment efforts of the Egyptian government to join the  JPMorgan Emerging Market Bond Index (EMBI)  will provide further support to flows to the Egyptian market and improve liquidity. Also, the attractiveness of Egyptian securities after  joining the index will help attract more cash flows.

Moreover, the negotiations being conducted by the Egyptian government to sign a new agreement with the International Monetary Fund (IMF) will provide additional support for investment climate in the Egyptian market.

Beltone predicts that the Central Bank of Egypt (CBE) decision last Thursday to apply a third rate cut on lending and deposit by 1% will improve the business climate and increase investment rates, especially in Egyptian bonds.

The financial agency said that the coming period may witness a gradual improvement in the levels of private spending, which may push inflationary pressures and the pressure on the pound in the next fiscal year 2020-21.

Until the reduction of the gap between wages and inflation, pressure on the Egyptian trade balance during the current fiscal year 2019 -2020 is expected to ease.

The decision to cut interest rates came in line with expectations and supported by the decline in the annual rate of inflation to 3.1% in October 2019, and the strength of the pound, which is expected to continue its movements in a limited area within the level of EGP 16, which helps to keep inflation rates within the target of the CBE at 9% (± 3%) until the end of 2020, unless there are any unexpected price shocks.

Beltone noted there was no change in domestic fuel prices in quarterly revisions during the year on the back of the current decline in Brent crude, which is below the budgeted level of $ 67 per barrel, coinciding with the appreciation of the pound against the dollar.

In addition, the growth of net foreign assets at banks and the establishment of a possible time frame for managing external debt will support the outlook of the Egyptian pound. Despite the low interest rates, the yield on governmental securities will remain particularly attractive especially as debt instruments settable on the EuroClear mechanism, which allows it to be traded globally in local currency.

The Central Bank of Egypt's Monetary Policy Committee (MPC) decided last Thursday to reduce the interest rate on deposit and lending overnight, and the rate of the main operation by 100 basis points (1%) to 12.25% and 13.25% and 12.75, respectively, and reduced the discount rate to 12.75%.

Beltone is one of the largest investment banks in the Middle East and North Africa.