Beltone Financial issued its annual report covering the Egyptian economy, titled “the Great Recovery.” The report gave an overview of its forecasts for growth rates, budget deficit, performance of economic sectors, government plans to cut subsidy, flotation impact on the Egyptian Stock Exchange (EGX), and the expected exchange rate over the coming years.
Beltone amended its forecast of EGX30, now expected to jump from 14,000 points to 20,000 points by the end of the year, while facing a drop in the value og the Egyptian pound to EGP 25-27.5 against the US dollar by 2021.
The report also expects the GDP growth rate to reach 3.3% at the end of the current fiscal year (FY), going up to 4.3% in 2018, and reaching 5.7% in the FY 2018/2019, during which it expects the pound to depreciate to EGP 21 per US dollar.
Concerning the exchange rate it states, “Beltone believes that the fourth era of exchange rates has already begun in the FY 2014/2015 and expects it to be longer and more volatile than the previous three, noting that the first era began in 1979 and ended in 1990, followed by another one from 1991 to 2002. The third era of exchange rates started in 2003 and lasted until 2013. Beltone said that all of these eras saw the value of the pound drop against the US dollar, while foreign exchange reserves were lost in an effort to protect an unjustified value of the pound.
Beltone did not set an expiry date for the current era, but stated that the exchange rate would reach EGP 21 per US dollar towards the end of this exchange rate era, while in 2021 it will reach EGP 27. The report based its predictions on the high inflation rates. It noted that the inflation rate will fall to 18% in the coming FY and then to 11% in 2019.
Furthermore, Beltone’s report pointed out that the Egyptian pound has already lost 96% of its value against the US dollar over the past four decades, and about 98% of its purchasing power since 1979.
Meanwhile, the report expected fuel prices to hike, based on the announced plan to cut fuel subsidy, as well as on the volatility of the exchange rate. The report stated that the price of gasoline 92 will move from EGP 3.5 per liter to between EGP 6.5 and 7 per liter in FY 2019. The price of diesel will also increase from EGP 2.35 per liter to between EGP 4.5 and 5, while the price of liquified petroleum gas (LPG) weighing 12.5kg will move up from EGP 15 to EGP 35. Additionally, the price of diesel fuel will rise from EGP 2,500 per tonne to EGP 4,000 per tonne. Moreover, Beltone stated that prices may even exceed these figures after activating the fuel smart cards system, which has already been implemented in 4,000 gas stations.
Beltone also expects the budget deficit to reach EGP 367bn, 9.8% of the GDP, at the end of the current FY, up from the EGP 326.4bn recorded at the end of the last fiscal year, back then marking 11.7% of the GDP. It further expects the deficit to drop from EGP 359.8bn in the coming fiscal year to reach EGP 323bn in the FY 2019, marking a drop from 8% of the GDP to 6%.