Fitch Solutions expects an improvement in the growth of the Egyptian economy in fiscal year (FY) 2023/24, raising its forecast for Egypt’s economic growth to 4.4% in the current fiscal year, up from 4.2% in FY 2022/23.
According to a report obtained by Daily News Egypt, Fitch Solution indicates that this improvement is supported by an increase in Gulf investments from the Gulf Cooperation Council countries.
The Egyptian government’s privatization plan has bolstered these investments. The report also expects an increase in investment spending by Gulf countries in Egypt during the coming period.
Despite the improvement in growth rates, the report believes that economic growth remains weak due to a significant increase in inflation rates and its impact on consumption.
There are expectations of a decline in the volume of exports of some basic commodities, which will be offset by a slight increase in imports to cover the shortage of goods in the market. Fitch also predicted that inflation will reach 41% next month.
Fitch expects CBE to raise interest rates, pound to weaken
Fitch expects the Central Bank of Egypt to raise interest rates by 100 basis points or 1% before the end of this year, following the 300 basis points already hiked until August 2023. It also predicted that the Egyptian pound will weaken by about 20% to reach EGP 38 per USD down from EGP 30.96 per USD by the end of 2023.
The Egyptian currency is expected to start weakening by September/October 2023. The authorities have already begun laying the foundations for this step, with increasing pressure on the government and increasing external financing needs.
Fitch Solution said that the external financing gap depends on the progress made by the authorities in the privatization plan and the successful adjustment of the currency rate. It also predicted that the budget deficit will widen to 7.2%.
Fitch warns of slow pace of foreign investment
Fitch believes that the threat to the Egyptian economy lies in the slow pace of attracting foreign investments, especially from Gulf Cooperation Council countries. In light of this, the slow pace may put further pressure on the currency and inflation.
Fitch said that the success of the Egyptian economy in attracting foreign investments will depend on a number of factors, including the successful implementation of the privatization plan, the improvement of the investment climate, and the resolution of the political instability in the country.
Fitch Solutions is a subsidiary of Fitch Ratings, a global credit rating agency.