CAIRO - 28 April 2024: Despite Fitch Ratings' reference to the risks of regional escalation on tourism and the Suez Canal, the Egyptian economy still maintains sufficient flexibility to contain those risks, the Egyptian Center for Strategic Studies said.
The center elaborated that the agreement on the Ras El-Hikma project, signed by Egypt with the United Arab Emirates (UAE), along with the increase in the flexibility of the pound exchange rate, has significantly reduced the risks of external financing in the near term and exposure to geopolitical events' impacts.
On Friday, Fitch Ratings said that escalating regional conflict would present risks to tourism and Suez Canal receipts in Egypt, weighing further on the current account deficit, noting that the direct exchange of strikes between Iran and Israel has raised the risks of an escalation of regional conflict beyond Gaza.
“However, Egypt’s recent Ras al-Hikma deal and greater exchange-rate flexibility, which have unlocked additional financing from international financial institutions and non-resident inflows into its domestic debt market, have markedly reduced near-term external financing risks, and vulnerability to geopolitical events,” the rating agency added.
The center affirmed that Fitch's report coincides with the International Monetary Fund's publication of the experts' report on the first two reviews of Egypt's financing program, indicating that Egypt has met 7 out of 15 structural benchmarks required to complete the two reviews. It emphasized that by June of the current year, the disbursement of the loan tranche totaling $1.646 billion is expected, with around LE 1.228 billion to be disbursed by the end of September of the same year, while the size of the next tranche will be approximately LE 1.228 billion by the end of December 2024.
The International Monetary Fund (IMF) stated in a recent economic review report on Egypt's economic program that the Egyptian economy is expected to achieve a growth rate of 5.6 percent during the fiscal year 2028/2029, up from the expected 4.4 percent in the fiscal year 2024/2025. It noted that the Egyptian economy achieved a growth rate in gross domestic product (GDP) of 3.8 percent during the previous fiscal year 2022/2023.
International assistance has not been limited to the International Monetary Fund alone but has also received significant international support from the European Union and the World Bank Group. The European Union has pledged to provide a package of assistance worth 7.4 billion euros ($8.1 billion) to Egypt.
The first quarter of the current year witnessed positive growth in the volume of inbound tourism to Egypt by a percentage ranging from 3 percent to 4 percent compared to the first quarter of 2024, where hotel occupancy rates in various tourist cities in different governorates reached approximately 54.78 percent, with a growth rate of about 8% compared to the same period in 2023, which recorded 47.20 percent.
Moreover, Goldman Sachs expects a surplus in Egypt's external financing of $26.5 billion over the next four years, compared to previous expectations of a deficit of $13 billion, as a result of financing coming from the International Monetary Fund and other partners in addition to the realized investment value from the Ras El Hikma deal.
Moody's changed its outlook for Egypt's credit rating from negative to positive, while the International Monetary Fund maintained its growth expectations for Egypt's economy at 3 percent during the current fiscal year.
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