Egypt growth forecast cut, currency expected to slip further

CAIRO, July 20 (Reuters) – Egypt’s economic growth is expected to be slower than previously forecast, while inflation will remain higher and the Egyptian pound will weaken slightly more than previous projections, a Reuters poll showed.

Egypt faces a chronic shortage of foreign currency, record inflation and an increasing debt burden even as the economy continues to grow relatively steadily through the shocks caused by COVID-19 and the war in Ukraine.

The government secured a $3 billion loan from the International Monetary Fund (IMF) in December, along with pledges that Egypt would move to a flexible exchange rate regime and reduce the state’s footprint in the economy while boosting the private sector.

However, the first review under the program was postponed because the exchange rate has remained constant at around 30.85 pounds to the dollar since March.

The median forecast in the July 10-18 Reuters poll of 13 economists is for growth of 4.2% in the fiscal year that began on July 1, slightly below the previous forecast of 4.5% in April. In 2024/25, growth will return to 4.8%, the latest poll shows.

Finance Minister Mohamed Maait said on Wednesday that preliminary figures show real GDP growth of 4.2% in the 2022/23 period.

The poll’s median forecast for the currency is that it will weaken to 34.8 Egyptian pounds to the dollar by the end of this calendar year, just below the previous forecast of 34 pounds.

Economists predict that it will fall to 36.95 pounds to the dollar by the end of 2024, and to 38.90 pounds a year later.

With Egypt reluctant to sell strategic stakes in state-controlled companies or lower valuations for stakes on offer, the flows of unnecessary dollars are somewhat limited, said Mikhail Volodchenko of AXA investment managers.

“In the short term they will probably find ways to bridge the gap… the question is what will happen in the longer term and whether they can get out of this conundrum,” he said.

The Egyptian pound has lost nearly 50% of its value against the dollar in a series of sharp declines since March 2022, and remains under black market pressure.

Annual headline inflation accelerated to a record 35.7% in June, surpassing the previous all-time high reached in 2017 after a sharp devaluation under the previous IMF program.

The median forecast from 11 economists surveyed is for headline inflation to ease to 22% by the end of the current financial year in June 2024, down from 13% a year ago.

In the last April poll, economists submitted a median headline inflation forecast of 20.9% for the 2023/24 fiscal year, and 9.3% for 2024/25.

Bankers and analysts say that the expansion of the money supply is used to cover the expansion of budget deficits, and risks that increase inflation and currency pressure.

(For other stories from the Reuters global long-term economic outlook polls package:)

Writing by Aidan Lewis; The polling of Anant Chandak and Milounee Purohit; additional reporting by Marc Jones in London; Editing by Rashmi Aich

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