“The Egyptian economy enters 2025 on a trajectory markedly different from 2024,” Moataz Yeken, chief economist at Egyptian consultancy firm LYNX Strategic Business Advisors, said in a recent report.
In the report, titled “Egypt Macroeconomic Overview for the First Quarter of 2024-25,” Yeken wrote that “Egypt’s economic outlook is cautiously optimistic.” While 2024 saw high inflation, stagnant growth, and heightened uncertainty fuelled by foreign-exchange volatility and compounded by a severely tense geopolitical environment, the current economic climate appears more stable, he said.
“The gradual decline in inflation throughout late 2024 coupled with a steadier currency has instilled cautious optimism in local and foreign markets. This improvement is bolstered by the truce in Gaza, which could further enhance regional geopolitical conditions and create additional opportunities for the economy,” Yeken said.
On a similar note, a team from US investment bank Morgan Stanley who were recently in Egypt and held meetings with private and public-sector figures, described the sentiment on the ground as one of “cautious optimism”.
They said the reform agenda implemented within the framework of the agreement with the International Monetary Fund (IMF) “has put Egypt on viable path to macro stabilisation in the medium term.”
They cited stronger levels of coordination between the Central Bank of Egypt (CBE) and the Ministry of Finance and members of the cabinet as having “improved local confidence in the policy mix”. In addition, they said tight monetary and fiscal policies, and increased flexibility in the foreign-exchange market, “support expectations for a stable currency amid continued support from regional and multilateral partners.”
The ceasefire in Gaza was a positive development, according to Yeken. Egyptian contractors and suppliers stand to benefit significantly from large-scale reconstruction projects estimated at $3 to $5 billion in the Strip, he wrote.
“This enhanced geopolitical position can attract foreign investment and international aid and open the door for further strategic partnerships,” he said. Moreover, with tensions easing, maritime traffic through the Suez Canal could rebound to pre-2024 levels, potentially boosting revenues.
The tourism sector, responsible for around $14 billion in revenue in 2024, could improve further if perceptions of safety and stability hold, especially in Sinai and other major tourist destinations.
Morgan Stanley said they expect tourism revenues of $15 billion in fiscal year 2024-25 and $15.5 billion in the following year. Their report also cited the IMF as estimating tourism revenues to reach $24.5 billion by the end of the reform programme in fiscal year 2028-29.
Meanwhile “Suez Canal revenues can only go higher, but the timing and pace remain uncertain,” according to Morgan Stanley. The Suez Canal saw losses of $7 billion in revenues in 2024. It brought in $9.4 billion in fiscal year 2022-23.
The Suez Canal Authority (SCA) announced on Monday that Chrysalis, an oil tanker carrying the Liberian flag, crossed the Suez Canal for the first time since it was attacked in the Red Sea in July last year.
SCA Chairman, Lieutenant-General Osama Rabie, said that the tanker’s return to the Suez Canal sends a message of reassurance about the safety of navigation in the Red Sea and the Bab Al-Mandeb region.
The drop in Suez Canal revenues was one of the factors that negatively affected the balance of payments last year. However, a resilient tourism sector and the recovery in workers’ remittances have supported foreign-exchange revenues, Morgan Stanley said.
They also see funding needs covered by net foreign direct investments (FDI) and portfolio inflows and a pipeline of multilateral fund. According to CBE data, remittances from Egyptians working abroad saw a 65.4 per cent increase in November 2024 to reach approximately $2.6 billion, compared to around $1.6 billion in November 2023.
Morgan Stanley estimate refinancing will reach $32 billion in the current fiscal year, exceeding pre-2022 levels.
Inflation and interest-rate expectations were another issue the two reports examined. Yeken expected the CBE to continue its monetary tightening stance through at least mid-2025. He said interest rates are likely to remain high in the near term, though they could edge down slightly if the downward trend in inflation persists.
“The success of the CBE’s approach largely depends on the pound’s resilience against external pressures, particularly in the light of the $28 billion in external debt repayments due in 2025. If these obligations are met without significant disruptions to the foreign-exchange market, inflation could moderate further, reinforcing economic stability,” he said.
Morgan Stanley said that experts they met with expect the CBE to start cutting rates during the Monetary Policy Committee meeting on 20 February with a cautious one to two per cent cut.
They said experts they met with expect a slow rate-cutting cycle of around six per cent in 2025, while they see a more aggressive cut of 10 percentage points. The investment bank said the local view partly reflects “expectations regarding the inflationary impact of additional fiscal measures, with many analysts factoring in further energy price hikes to reach cost-recovery levels before year-end.”
While the local consensus on year-end inflation was between 16 to 18 per cent, Morgan Stanley’s was forecast at 14 to 15 per cent. Egypt’s annual inflation rate declined to 23.4 per cent in December 2024 against 25 per cent in November, the lowest in two years.
However, while robust monetary policy and prudent exchange-rate management will remain pivotal in containing inflation, the continued emphasis on structural reforms and private-sector development will be key to driving growth, wrote Yeken.
He said that “policymakers must maintain fiscal discipline, modernise regulatory frameworks and uphold good governance to stimulate sustainable investment.”
Likewise, Morgan Stanley said Egypt’s “medium-term outlook should crucially depend on progress on structural reforms.” They noted that the experts they met with believed “the biggest challenge is to increase the private sector’s contribution to growth via reforms to level the playing field and the divestment of state assets.”
The investment bank forecast the GDP growth rate to reach four per cent in the current fiscal year, rising to 4.6 per cent next year. Real GDP growth between July and September 2024 reached 3.5 per cent, according to Ministry of Planning data, the strongest pace since March 2023.
According to Yeken, this was driven by robust non-petroleum manufacturing activity. “The positive impact of Egypt’s diversification strategies and increased investments in manufacturing hubs have fueled this sector’s expansion, and it is expected to remain a key driver of growth in 2025, aided by continued government incentives and rising local demand,” he said.
He added that improved private-sector sentiment, government-led structural reforms, and a more predictable monetary policy environment will all play significant roles in sustaining these projections of a higher GDP growth rate over the medium term.
* A version of this article appears in print in the 6 February, 2025 edition of Al-Ahram Weekly
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