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Economists divided over growth rates in 2017

By Ahmed Kamel

Economists are divided over the nation’s economic growth outlook in 2017. While some of them expect the government to achieve its financial and monetary objectives, others say the exchange rate woes may hold back growth next year.

Finance Minister Amr el-Garhy said the government would target a five per cent growth, and to slash unemployment to 11 per cent of labor force in the fiscal year 2017/18.

Egypt’s gross domestic product (GDP) grew by 4.3 per cent in the fiscal year 2015/16, down from 4.4 per cent a year earlier, according to Planning Ministry data.

Egypt’s fiscal year begins on July 1. The nation’s GDP totaled LE 2.708 trillion ($142.5 billion) in the fiscal year 2015/16, Planning Ministry data showed.

“The government has overestimated growth forecasts for 2017. It has taken some measures which will negatively affect consumption, which is the main growth driver in Egypt. Consumption accounts for around 95 per cent of economic growth in this country,” said economist Medhat Nafie.

“How come the government eyes lower state budget deficit in 2017/18 without higher growth rate of GDP?” wondered Nafie.

The government said it would target a state budget deficit of 9.5 per cent of GDP, down from 12.2 per cent in the fiscal year 2015/16. It also eyes the reduction of sovereign debt to 94 per cent of GDP, down from 98 per cent at present. A number of economists said the pound would undergo more pressures in 2017, casting a shadow on the state budget. The Finance Ministry has not set the US dollar rate to be a basis for drafting the nation’s 2017/18 budget.

One source said the ministry would set the greenback rate used in drafting the budget in April 2017.  

“A Fitch report said Egypt would face tough challenges in 2017. The government’s economic reform program will not bear fruit in the short term. Social pressures will require the government to act fast,” said Mohsen Adel, deputy chairman of the Egyptian Association for Investment and Finance.

Earlier this month, Fitch Ratings affirmed Egypt’s senior unsecured foreign- and local-currency bonds at ‘B’. The rating agency also kept the country’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B’ with “a stable outlook”.

“We expect greater fiscal consolidation in the fiscal year 2018, with the budget deficit narrowing to nine per cent of gross domestic product (GDP),” Fitch said in a statement on its website.

To overcome the dollar crunch, Adel urged the government to launch investment incentives in a bid to create jobs and inject hard currency into the economy.

Egypt is seeking to secure higher inflows of foreign direct investment to repay its international dues.

Economist Hany Tawfik, chairman of Cairo-based investment and private equity firm Union Capital and former head of the Egyptian Private Equity Association, forecast a surge in foreign direct investment in 2017.

He said Egypt would net higher inflows of remittances by Egyptian expatriates, citing that the FX black market took a blow after the currency float on November 3.

Stocks heading to fresh highs in 2017

By Ahmed Kamel

After surging 5,339 points, or 76.2 per cent, to close above 12,300 points, an all-time high, at the end of 2016, the nation’s benchmark index is seen to target fresh record highs in 2017. 

A number of technical analysts forecast the EGX30 index to climb to 14,000 points in the first quarter of 2017 in the wake of massive foreign speculation on the country’s blue chips.

Shares in the country’s heavyweight Commercial International Bank (CIB) led the uptrend in 2016, climbing 91.86 per cent to LE73.08 (around $3.8).

CIB weighs roughly 40 per cent of the EGX30 index, market data showed.

“The EGX30 index started 2016 at 7,006 points. It fell to 5,526 points. After the pound flotation, it jumped to 11,688 points at the end of November,” said technical analyst Mohamed Saeed.

The benchmark index EGX30 slipped 75.41 points, or 0.61per cent, ending last week’s trading at 12,344.89 points. However, the broader EGX 70 and EGX 100 indexes gained 0.37 and 3.35 per cent to 463.44 and 1,096 points respectively.

 “Turnovers shot up from an average of LE300 million-LE400 million early 2016 to an average of LE1.5 billion per day after the flotation,” Saeed noted.

Volume totaled LE 8.8billion last week, down from LE13.1 billion the previous week. Market capitalization shed LE 7.05billion, or 6.6 per cent, to LE 601.59 billion, market data showed.

Arabs and non-Arabs made net purchases worth LE100.5 million and LE1.2 billion last week. Locals made net selloffs worth LE 1.3billion, market data showed.

Locals, Arab and non-Arabs accounted for 82.15, 7.87 and 9.98 per cent respectively last week.

Analysts said the liberalization of the local currency boosted volumes and investor appetite over the past eight weeks. Market capitalization rose by LE196.7 billion in Q4 2016, bourse data showed.

“Fresh record highs await the EGX30 index in 2017. The main index has jumped 4,000 points over two months. It will hit 14,000 points in Q1 2017,” said technical analyst Saeed el-Feky of Cairo-based Osoul Securities.

“The currency float has significantly lifted the stock market as foreign investors bought into cheaper local shares,” he said.

Arab and non-Arab investors have made net purchases worth LE1.715 billion and LE7.03 billion since the beginning of the year.

The market will keep an eye on the monetary and foreign exchange rate policies of the Central Bank of Egypt (CBE) throughout 2017, another analyst said.

“Foreign investors will continue their bullish trend as the dollar strengthens versus the Egyptian pound. The CBE is expected to slash interest rates in Q1 2017 to reduce investment cost,” said analyst Mohamed Assem. 

The central bank’s Monetary Policy Committee kept overnight interest rates unchanged on Thursday. It left deposit and lending rates at 14.75 and 15.75 per cent respectively, the CBE said in a statement on its website.

The central bank raised key interest rates by 300 basis points, or three per cent, after free floating the Egyptian pound on November 3. The move was aimed at shoring up the local currency versus the US dollar, which shot up from LE8.78 to LE19 after the pound flotation.

 

 

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