Egypt needs to advance IPO programme: EBRD

Hagar Omran
6 Min Read
Traders work near the exchange bell at Egypt's Stock Exchange (EGX) in Cairo July 3, 2013. Cairo's benchmark dipped 0.3 percent, slipping off a three-week high and extending 2013 losses to 9 percent. Bourse data showed that foreign investors were sellers but Egyptians remained net buyers on hopes a military intervention would put an end to the Islamist president's rule. REUTERS/Mohamed Abd El Ghany (EGYPT - Tags: BUSINESS)

The European Bank for Reconstruction and Development (EBRD) said that Egypt needs to advance its IPO programme, according to a report released on Tuesday entitled ‘Transition Report 2018/19’.

The EBRD added that the sale of state assets would boost the capital market and private sector’s ownership, and increase their efficiency.

“There is a need to prioritise the sale of well-performing, bankable, and profitable companies to rebuild confidence and attract international investors, even from unconventional destinations,” mentioned the report, adding that commitment to the current economic reform programme should continue.

Meanwhile, the IMF Regional Economic Outlook (REO) report,released on Tuesday, said that Egypt is taking steps to improve access to industrial land for business, and will sell minority shares in five state firms this year to reduce the state’s role in the economy.

The EBRD’s report mentioned that the economic reform programme has improved Egypt’s overall macroeconomic position and its business climate, noting that further legislation and implementation are needed to strengthen the recovery, including land registration reform.

“Maintaining meticulous debt management mechanisms is needed to ensure repayment sustainability. The government’s appetite for borrowing remains high, and commitment to the debt strategy implemented by the ministry of finance is crucial to reduce the level of public debt, which currently represents 92.5% of the GDP,” the report said.

The report added that the growth continued to accelerate, and inflation declined to within the Central Bank of Egypt’s (CBE) target, noting that the GDP has been growing for five consecutive quarters, while fiscal and external deficits are narrowing, anchored within the IMF-supported programme.

The IMF further added that strong economic growth is expected to continue in the short term as the GDP is expected to grow by 5.5% in fiscal year (FY) 2018/19 and by 5.8% in FY 2019/20, supported by a number of factors.

The positive outlook represents the recovery of tourism; increased FDI, competitiveness and exports; the start of natural gas production from Zohr field; and the implementation of business environment reforms and prudent macroeconomic policies.

In nominal dollar terms, the GDP per capita will continue to grow in the short term, said the report, noting that the main factors that risk the outlook’s positivity are the slowdown of reforms and the increase of global oil prices which would delay fiscal consolidation. 

“These risks are mitigated by the authorities’ strong commitment to, and ownership of, the economic reform programme,” the report said.

“The reform progress, since the end of 2016, was significant. Most recently, there was progress on the industrial licensing, natural gas industry, railway, investment, companies, and bankruptcy laws,” the report added, referring to the government’s decisions to cut fuel, electricity, water, and metro ticket subsidies.

Foreign interest increased in local investment and debt, following the approval of the IMF programme in November 2016, coupled with the strong reform momentum, which led to higher foreign direct and portfolio investments, increased remittances, a build-up of reserves and increased creditworthiness, noted the report.

The report also mentioned that inflation has declined from its record high level of 33% in July 2017 to 16% in September 2018. Meanwhile, in January 2018, the real interest rate turned positive for the first time in almost two years, and continued to increase, supported by the decline in inflation, despite the easing of monetary policy which started in February 2018.

In recent months, Egypt has stepped up external borrowing, and shifted away from costly short-term domestic debt to rebuild foreign exchange reserves, and reduce clustering credit to the private sector, said the report.

It noted that international reserves rebounded to surpass pre-2011 levels, reaching a record high of $44.5bn in September 2018, and covering about seven months of imports, up from a critically low level of 3.1 months in June 2016.

The IMF said that resolutions to protect the most vulnerable groups were announced by the President Abdel Fattah Al-Sisi in June 2018.It included a 15% increase in pensions for elderly citizens, increasing allocations for the ministry of social solidarity’s conditional cash transfer programme Takaful and Karama (solidarity and dignity), a 7% periodic bonus for public employees, and a 7-10% raise in base salaries.

The EBRD’s Transition report 2017-2018 mentioned that some important reforms were delayed in Egypt, noting that the authorities have announced plans to offer shares in state-owned assets in the financial and energy sectors to promote competition, but implementation had been postponed.

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