Morgan Stanley expects the Egyptian pound to stabilize against the dollar in light of the tight monetary and financial policies, especially with the continued support from regional and international partners, expecting the International Monetary Fund (IMF) Board of Directors to soon approve the fourth review of the program.
It pointed out that most local economists and investors in the market see the US dollar against the Egyptian pound ranging between 48-52 for the rest of 2025, remaining within the levels indicated by futures exchange contracts.
The bank described the atmosphere in the country in a note it issued - after a visit it made to Egypt and held meetings with experts from the public and private sectors, as cautious optimism, as the unification of the exchange rate in March, along with multilateral financing and the reform program supported by the International Monetary Fund, helped put Egypt on a sustainable path towards macroeconomic stability in the medium term.
It said that foreign investments in local debt declined to $14 billion from about $20 billion at its peak in March, according to market participants’ estimates, and that the Central Bank’s data reveals that foreign holdings of bills by the end of October, which amounted to $37 billion, include $18.3 billion in guarantees related to local banks’ repo transactions with foreign banks, which must be deducted from the total figure to avoid double counting.
It pointed out that the large March dues, amounting to $25 billion, are not worrying because they are debts that will mostly be owned by local banks.
Morgan Stanley expected that the decline in net foreign assets of commercial banks is temporary.
The bank stated that increased coordination between the Central Bank and the Ministry of Finance, as well as between members of the government, has boosted citizens’ confidence in the economic policies being followed, a remark that Goldman Sachs had previously confirmed.
It expected the current account deficit to decline to $18 billion during the past fiscal year from $21 billion recorded last fiscal year, an increase from $14 billion in its previous estimates, but in line with analysts’ expectations in Egypt of between $18 and $20 billion.
Egypt’s interest rate expectations in 2025
Similar to Goldman Sachs, Morgan Stanley sees room for a 10% interest rate cut during the current fiscal year, while analysts’ expectations were limited to 6%, while Goldman Sachs saw the cut as reaching 13%.
Morgan Stanley expected inflation to decline to levels between 14 and 15% during the current fiscal year.
Egyptian economists expected the current account deficit to remain high in the short term due to a number of factors, some of which, such as the energy deficit, are expected to improve only gradually.
The bank said that the decline in geopolitical tensions is a major factor in improving the external balance, especially through the recovery of Suez Canal revenues, although it is uncertain how quickly the Suez Canal will resume transit traffic, but it expected the canal's revenues to rise to $8 billion next fiscal year from about $4 billion estimated for the current fiscal year.
Suez Canal performance in 2025
It expected a gradual recovery in the levels of ships crossing the canal starting from the second quarter, with full recovery reaching the second quarter of 2026.
It pointed out that economists in Egypt have a cautious view on inflation as a result of their expectation of another increase in energy prices towards cost recovery levels by the end of the year, and the possibility of removing some exemptions in the value-added tax later, according to the requirements of the International Monetary Fund program.
Analysts in Egypt expected that monthly inflation would rise during the next two months due to demand during the Ramadan season, but annual inflation should record a sharp decline due to base effects.
Egypt's Dollar Resources
The bank said that on a positive note, the resilient tourism sector and the recovery of remittances from workers abroad helped support foreign exchange revenues, but these revenues only partially compensated for the widening trade deficit and the decline in Suez Canal revenues.
Morgan Stanley quoted local economists as expecting the current account deficit to be fully covered in light of the good momentum in foreign direct investment supported by regional partners, multilateral financing lines including support from the International Monetary Fund, the European Union, and the World Bank, and the possibility of an increase in the flow of hot hopes.
It expected remittances from Egyptians abroad to rise to $32.5 billion in the current fiscal year at a rate of $8 billion per quarter, and that tourism revenues would rise to $15 billion in the current fiscal year and then to $15.5 billion in the next fiscal year, with tourists already reaching 15.7 million in 2024.
He said that the recovery in tourism is supported by the calm of geopolitical tensions, both in the region and in Russia/Ukraine.
Egypt's Economic Growth Forecast 2025
The bank said that growth momentum will begin to recover gradually, as despite the stability of foreign currencies and the decline in supply-side constraints, the decline in purchasing power and the combination of policy tightening have negatively affected growth.
Companies are reportedly complaining about the urgent need for working capital and tight credit conditions that are hindering the recovery, but these concerns are expected to begin to ease in the second half of 2025 with the decline in inflation and interest rates.
It expected growth to reach 4.0% year-on-year in FY2025 and 4.6% in FY2026, within the range of analysts' growth expectations of 3.8-4.0% in FY2025 and 4.6-4.8% in FY2026.
It pointed out that the main concern among investors about Egypt is whether current policies are sufficient to rebalance the Egyptian economy in the long term.
Investors' expectations
He stated that in the current situation, although privatization efforts and asset sales are on track, they have lagged behind investors' expectations, and there has been a recent deterioration in current account data, while the timeline for recovering Suez Canal revenues remains uncertain.
However, the bank sees sufficient reasons to justify its positive stance on Egyptian bonds, especially since the debt management strategy adopted after the Ras Al-Hikma deal contributed to reducing Egypt's leverage, as the authorities used a large part of these flows to repay debt (mostly domestic), and some external debt maturities were absorbed last year.
According to IMF estimates, the debt level is expected to converge to the average level of countries with a credit rating of "B" by 2028.
It expected that total issuances in 2025 would reach $2 billion, compared to maturities worth $3 billion, which means that net issuance would be negative by $1 billion.
Fuel price hikes
The bank said there are inflationary pressures associated with further expected increases in energy prices to reach cost-coverage levels before the end of the year, as agreed with the International Monetary Fund.
It stated that although the bulk of the required adjustments have already been made, most local experts expect two additional increases in fuel prices during 2025, bringing the total increase to between 20-30%, based on their assumptions about the global oil price and the exchange rate.
Accordingly, local inflation expectations for the end of 2025 ranged between 13-20% annually, but the general consensus was around 16-18%, while the bank’s basic estimates see inflation falling to about 14.5% annually by the end of the year.