Beltone Financial expected the dollar to stabilise at EGP 17.55 during fiscal year (FY) 2017/2018.
The company said in a recent report issued on Monday that lower inflation supports a more expansionary monetary policy by the Central Bank of Egypt (CBE), with the expectation that foreign direct investment (FDI) and recovery in consumption rates will lead to growth rates in FY 2017/2018.
According to Beltone, the price stability of the dollar and the disappearance of the effects of economic reforms have contributed to reducing inflation, which supports its expectations to cut interest rates by about 400 basis points this year.
“We continue to expect the recovery of private sector investments to begin by the first half of 2018/2019, and we expect companies to take advantage of the year 2018,” Beltone stated in its report.
FDIs are expected to take the lead in the recovery of expenditure levels, supported by the continuation of national projects, which will lead to a GDP growth of 5% in FY 2017/2018.
Beltone noted the economic recovery will likely be a strain on imports; however, improved tourism and export revenues, stock market investments, domestic debt, and remittances from Egyptians will achieve the desired balance.
“We expect strong reserves, covering the imports of 8.8 months, to stabilise the dollar at an average of EGP 17.55 in fiscal year 2017/2018, despite the payments due on the government,” read the report.
Beltone expected the budget deficit to fall to 10% of GDP, which would require an accumulation of external debt. According to the company, expenditures are expected to remain under pressure, with spending on social protection to ease inflationary pressures and ballooning public debt.
“We expect the decline in the return of debt instruments and the recovery of investment appetite to increase bank lending to the private sector at the expense of funding the budget gap,” the report stated.
It said that the government aims to offer international bonds worth $7bn during FY 2017/2018, expecting a rise in foreign debt levels in the short term, making that the main weakness standing in the way of improving economic indicators.
Beltone predicted that 2018 would see a large number of macroeconomic stimuli, led by lower interest rates and higher growth rates, which will support the recovery of economic indicators, and the company’s 40% earnings growth forecast, which means a possible rise in stocks.
“We support investment in companies that offer attractive specific opportunities, with some companies favouring consumer goods, construction, fertilisers, and real estate,” Beltone said.
Regarding the banking sector, reducing interest rates and extending deposit maturities are the main avenues for banks to reduce the expected decline in interest margins.