Foreign investments

Foreign investment in Egyptian debt market rebounds in 2021, additional IMF program likely: Fitch

The report attributes this to Egypt’s record of economic and structural reforms, IMF support programs, high real interest rates and a stable exchange rate.

On the other hand, inflation, global financial market conditions and the country’s dependence on external financing (loans) are eroding its attractiveness to foreign investors, although Egypt has the highest real interest rate in the region.

“Egypt has partly rebuilt its external financial reserves using inflows from non-residents and other external financing. However, the sum of the Central Bank of Egypt’s (CBE’s) international reserves and its other foreign currency assets remains slightly below pre-pandemic levels, and the CBE’s reserves are significantly lower than pre-pandemic levels. pandemic. Banks’ net foreign assets have also turned negative,” the report explains.

However, many factors still support Egypt’s external resilience, including its relationships with bilateral and multilateral lenders and access to off-market financing.

The report also indicates that another IMF program for Egypt is likely, especially if Egypt were to face a liquidity shock amid the current challenges.

In response to the first wave of the pandemic, the IMF approved two loans for Egypt under the Rapid Financing Instrument and the Fund Standby Arrangement, with a total value of more than USD 8 billion. dollars. The IMF provided Egypt with both loans in 2021.

“Inclusion in the index and improvements in market structure will provide structural support for investor demand. The current account deficit is expected to moderate, with a recovery in external demand and tourism. The reform program The government’s fiscal and economic policy has not been dependent on the IMF program and will likely continue,” the report said.

In October, Fitch Ratings maintained Egypt’s long-term foreign currency issuer default (IDR) rating at ‘B+’ with a stable outlook.

He attributed his decision to the country’s ongoing fiscal and economic reforms, as well as its large economy, which has proven its stability and resilience during the pandemic.

However, foreign direct investment (FDI) inflows into the Egyptian market decreased in fiscal year 2020/2021 to $5.2 billion from $7.5 billion recorded in fiscal year 2019/2020, due to global challenges related to the pandemic, according to the latest data. published by the BCE.

The CBE’s monetary policy committee is expected to hold its eighth and final meeting for 2021 to review policy interest rates soon.

Over the past seven meetings, the MPC has kept the CBE’s overnight deposit rate, overnight lending rate and main operations rate at 8.25%, 9.25% and 8, 75%, respectively. The discount rate also remained unchanged at 8.75%.

Rates have remained constant since the December 2020 meeting, when the CBE cut interest rates by 0.5% (50 basis points).

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