Egypt’s economy still robust and is growing in a way that can make it the strongest among emerging markets, Goldman Sachs has said in a new report.
The report added that Egypt has achieved remarkable success through its economic reform programme initiated in November 2016.
Egypt's real interest rate, at 6.5 percent, and debt instrument proceeds, at 6.7 percent, are among the most attractive rates globally where many counterpart countries record one percent and 0.5 percent respectively, enhancing foreign investor appetites as well as supporting projections of foreign investment inflows, according to the report.
On interest rates that will be reviewed by the Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) on 24 September, Goldman Sachs expected that the CBE will balance between the inflation rate limit, which CBE set at nine percent (plus or minus three percent) and protecting foreign investment inflows.
In this regard, the report noted that although there is room for decreasing key interest rates in Egypt, the expected scenario is that the CBE will put the rates on hold without introducing further cuts for the sake of maintaining demand on debt instrument investments.
Nonetheless, the CBE targets, over the medium term, cutting interest rates to reach a real interest rates level ranging around 2.5 percent, down from 6.5 percent at present, according to the report.
The report noted that in case inflation rates would increase by two percent, the CBE would cut interest rates by two percent in return, expecting the inflation rate to stand at 4.5 percent during the coming two months, which is under the CBE’s limit, with projections that it rise to seven percent or up to 7.5 percent in the future.
Meanwhile, the report revealed that while about $20 billion exited the Egyptian market from March through June, amid the onset of the coronavirus pandemic, around $10 billion returned in recent months, with projections of an improvement in Egyptian expat remittances.
The report also pointed out that Turkey can no longer compete with Egypt in the field of emerging markets due to the deterioration of its economic situation, making the country unattractive for investors.
On the Egyptian pound's performance, the report stressed that it will remain significant with an upward tendency, saying that increasing in its price against the US dollar will not pose a big risk to Egyptian export competitiveness.
Yet, the report urged more support be given to the private sector to increase its investments in research, improvement and capacity building.
Regarding tourism, the report expected the sector to rebound in the third quarter of 2021 after being affected harshly because of the Covid-19 crisis, adding that tourism accounts for 20 percent of Egypt’s total economic activity.