The Economic Pulse

The near-term macro-economic outlook indicates positive momentum in the market and a brief window for currency adjustment. The Egyptian government has secured a much-needed influx of foreign currency through a planned USD 35 billion investment from an Abu Dhabi-backed group, specifically in a major real estate project on Egypt's North (Mediterranean) coast at Ras El Hekma. This investment is expected to provide ample liquidity to cover Egypt's financing gap over the next four years. Coupled with the government's imminent closure of USD 12 billion in financing from the IMF and other development partners, this coordinated effort is poised to significantly strengthen the foreign exchange liquidity positions at the Central Bank of Egypt.

Following the expected announcement of an IMF support program, some devaluation of the Central Bank of Egypt's official exchange rate is anticipated. This devaluation is likely to be below the current parallel rates of the Egyptian pound to the US dollar and is expected to positively transform domestic sentiment, facilitated by the resolution of a major supply/demand market for USD and imports.

Easing of foreign-exchange supply constraints and a better-functioning exchange market, including the absence of a parallel rate, would be a clear positive for the economy. Moreover, increased capital inflows, including the FDI deal, may limit the additional inflationary impact from a weaker official rate if they reduce the scale of the exchange-rate realignment needed to resolve external imbalances.

Amid these efforts, positive signals arise from the government's announcement of the 2023/2024 plan, which estimates the economic growth rate to be approximately 4.1% during that period. The announcement emphasized that these projections align with those provided by international institutions, suggesting an anticipated growth rate for Egypt ranging between 4% and 4.3% for the year 2023/2024.