Cairo - Mubasher: Deutsche Bank expects the Egyptian economy to grow by 3.9% in the third quarter of fiscal year 2016-2017, according to a report issued on Monday.
The bank gave a positive view of the Egyptian economy in the short run, supported by the growth of foreign exchange reserves and capital inflows, and improvement in the country’s current account position.
In the event that Egypt’s inflation rate declines, the German bank said it expects the country’s economic growth to stand at 4%.
Deutsche Bank forecasts Egypt's inflation to reach about 20% by the end of 2017 as a result of the Central Bank of Egypt’s (CBE) interest rate hike.
Inflation has continued to surge, since the currency flotation in November last year, reaching 32.9% year-on-year at the end of April.
Despite the increase in foreign cash reserves to $31.1 billion, Egypt still needs net cash inflows to meet its huge funding obligations in the fiscal year 2017-2018 and in 2018-2019, Deutsche Bank said.
The bank’s analysts pointed to the rise in foreign investors’ demand of debt instruments offered by the Egyptian government, after the CBE’s recent decision to raise interest rates by 200 basis points.
This contributes to the recovery of foreign direct investment (FDI), Deutsche Bank analysts said, noting that despite the recovery, FDI levels are still below those registered before 2011.
The CBE governor said that Egypt received nearly $1 billion of FDI inflows after the interest rate hike.
The report showed that Egypt's private sector had already attracted higher than expected cash inflows, through raising $7 billion from its recent US dollar-denominated bond issue in January and May, noting that the risk premium of investing in Egypt had declined.
The report further predicted a rise in tax revenues from goods and services in fiscal year 2017-2018 to represent 36% of the budget revenues, after imposing the value-added tax (VAT) in the next fiscal year.
Despite the rise, Deutsche Bank forecasts that tax revenues in the upcoming fiscal year will come below the Egyptian government's expectations.
It also predicted a decline in the allocation of energy subsidies in the fiscal year 2017-2018, but highlighted that subsidies for petroleum products will remain unchanged.
