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Daily News Egypt
3 days ago
- Business
- Daily News Egypt
Private sector lending rises 10.1% in Q1 2025 as inflation eases: CBE
The Central Bank of Egypt (CBE) has announced that local currency loans to the private sector grew by an average of 10.1% in the first quarter (Q1) of 2025, a sharp turnaround from the -8.7% contraction recorded during the same period in 2024. In a recent report, the CBE attributed this rebound primarily to stronger demand from private businesses, supported by a significant decline in the annual headline inflation rate in February 2025. The Bank noted that these developments signal a recovery in real economic activity across the private sector, a trend expected to continue in the coming months. On the monetary side, the CBE projects a slowdown in the growth of local liquidity, expecting it to ease to 23.2% by the end of June 2025—down from 28.7% a year earlier. Liquidity growth is forecast to stabilise at 22.8% by the end of June 2026. This anticipated deceleration reflects the diminishing impact of the March 2024 exchange rate unification, which had previously triggered a surge in the banking sector's net foreign assets and created a strong base effect beginning in March 2025. Looking ahead, the Central Bank expects headline inflation to average between 14% and 15% in 2025 and decline further to a range of 10% to 12.5% in 2026. This compares to an average of around 28.4% in 2024. While inflation is projected to continue falling throughout 2025 and 2026, the CBE cautions that the pace of decline will moderate following the sharp drop observed in early 2025. This more gradual disinflation is attributed to ongoing fiscal consolidation efforts and the slower retreat in non-food commodity prices. The Bank reiterated its commitment to achieving its inflation target of 7% (± 2%) by the fourth quarter of 2026. It affirmed that current monetary conditions remain appropriate to support this path, adding that it will maintain a positive real interest rate to help secure a sustained decline in core inflation and anchor inflation expectations. In a separate update, the CBE disclosed that the net foreign assets (NFAs) of the banking system—which includes both the Central Bank and commercial banks—turned positive as of May 2024, reaching a surplus of $15.1bn by March 2025. This improvement was largely driven by inflows from the Ras El-Hekma deal and renewed foreign investment in Egyptian debt instruments, buoyed by increased investor confidence following the exchange rate unification. Additional support came from a recovery in remittances from Egyptians abroad and continued backing from international financial institutions.
Al-Ahram Weekly
12-04-2025
- Business
- Al-Ahram Weekly
Why is the Egyptian Pound testing new lows? - Economy
Amid global market volatility and mounting domestic economic pressures, the Egyptian pound (EGP) is undergoing one of its most sensitive phases since the 2016 currency floatation. In the first week of April, the EGP hit a historic low against the US dollar, dropping to EGP 51.67/1 USD, before recovering slightly to EGP 51.24/1 USD. This raised broader questions: Is this fluctuation a natural market response, or part of a deliberate strategy by the government to reprice the pound? Egypt is committed to a flexible foreign exchange (FX) regime as part of its $8 billion loan deal with the International Monetary Fund (IMF). This means the EGP is vulnerable to further devaluation, especially amidst unprecedented global and regional challenges. Capital f light a dds p ressure "What's happening isn't surprising — it's the inevitable result of six core factors, ranging from foreign investment withdrawals, domestic pressures, and external obligations, to rapidly evolving global political and trade contexts," banking expert Hani Mamoun explained to Ahram Online. In December, Prime Minister Mostafa Madbouly disclosed that Egypt's financing needs were around $22 billion. Fitch Ratings recently affirmed Egypt's B credit rating with a stable outlook, while S&P Global revised the country's outlook from "positive" to "stable," citing newly imposed US tariffs and regional geopolitical tensions as factors that could impact Egypt's ability to meet its financing obligations. Despite reassurances from Madbouly that the EGP operates under a free-floating regime, market reactions have been less optimistic. Foreign capital outflows have intensified, directly pressuring the local currency — a development the government acknowledged in a recent cabinet meeting. Mamoun confirmed that 'foreign withdrawals from government debt instruments, such as treasury bills and bonds, are one of the key factors driving demand for the US dollar.' When foreign investors exit, they demand their money in hard currency, exacerbating the gap and affecting the exchange rate. A persistent financing gap Banking expert Ahmed Shawky told Ahram Online that the pressure on the EGP isn't only due to capital outflows but also a persistent financing gap of $20–22 billion. Despite international pledges from the IMF, the Resilience and Sustainability Fund, and two tranches of European Union financing, this gap remains largely unfilled. According to previous IMF estimates, Egypt's total financing gap stands at about $28.5 billion, factoring in inflows from the Ras El-Hekma deal and boosted reserves. Shawky noted, 'Even after expected inflows, only about $12 billion will materialize, meaning pressure on the EGP will persist until Egypt secures more sustainable financing sources.' Global trade tensions amplify external pressure Global trade tensions are also influencing Egypt's currency pressures. Following US President Donald Trump's imposition of aggressive tariffs on Chinese goods, and China's retaliatory tariffs, capital flows worldwide have been disrupted, sending investments into safe havens like the US dollar and gold. Mamoun remarked, 'Capital doesn't move based on sentiment—it moves out of concern. Trump's decisions triggered global turbulence, pushing everyone toward the dollar and intensifying pressure on the pound, especially due to Egypt's strong ties to global fluctuations.' Seasonal pressures contribute to currency i mbalances Domestically, seasonal factors exacerbate the strain. The holy month of Ramadan typically sees a surge in imports of food and consumer goods, increasing demand for dollars. In March, Egypt's headline inflation rate accelerated to 13.1 percent, up from 12.5 percent in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). Once Ramadan ends, the Hajj season creates another spike in demand, as currency conversion to the Saudi riyal rises to cover the costs for over 100,000 Egyptian pilgrims annually. Mamoun added, 'Seasonal demand creates extra pressure on foreign currency and fuels parallel market activity, especially when demand isn't fully met through official channels.' Currency d epreciation as a tool for i nvestment and e xpor t Interestingly, some experts view the pound's devaluation as not just a result of macroeconomic pressures, but as a strategic tool to attract foreign investment and stimulate exports. Following the government's move to transfer five companies from the National Service Projects Organization (NSPO) to the Sovereign Fund of Egypt (TSFE) in preparation for privatization, speculation grew that the pound's drop was intended to make Egyptian assets more appealing to foreign investors. Mamoun confirmed this view: 'As the EGP weakens, state assets up for sale become more attractive to foreign investors. We saw this in previous valuations, like the Banque du Caire potential sale. A weaker EGP also improves export competitiveness.' On the other hand, Shawky offered a more balanced perspective, suggesting that the current fluctuation is not an unchecked devaluation, but rather a calculated move within flexible margins. He noted that foreign reserves remain above $47.7 billion, and the government is turning to alternative financing tools, such as sovereign sukuk and dollar bond issuances, while expanding investment partnerships in sectors like energy and real estate. Shawky also pointed out that falling Brent crude prices, which have dropped below $65 compared to the $82 benchmark in Egypt's national budget, indirectly support the pound. 'Every drop in oil prices saves the government millions of dollars monthly, providing more room to meet market needs without adding pressure on the exchange rate,' he explained. Could the d ollar e xceed EGP 53? Looking ahead, both Shawky and Mamoun agreed that the EGP could fluctuate between EGP 52 and 53 per dollar through June, barring any significant political or economic events. However, international institutions warn that further dollar appreciation is possible, particularly amid continued financing uncertainties and delays in implementing IMF-mandated reforms. While the outlook is relatively optimistic, the experts cautioned that geopolitical instability remains a significant risk, particularly with ongoing regional tensions and unmet external obligations. Mamoun and Shawky concluded their remarks by noting that the government is actively working to bolster reserves in anticipation of any regional escalation. 'The risks aren't just economic — they involve national security and critical supply chains as well.' Follow us on: Facebook Instagram Whatsapp Short link:
Al-Ahram Weekly
12-04-2025
- Business
- Al-Ahram Weekly
Fitch affirms Egypt credit rating at B with stable outlook - Economy
In a recent report, Fitch Ratings said that Egypt's credit rating is underpinned by its relatively large economy and strong growth potential, which are supported by substantial backing from both bilateral and multilateral partners. The agency noted Egypt's ongoing engagement with the International Monetary Fund (IMF) through an $8 billion Extended Fund Facility, which underpins all of Fitch's economic forecasts for the country. Persistent structural challenges Despite these strengths, Egypt continues to face significant structural challenges. Public finances remain weak, with debt interest payments absorbing a substantial share of government revenue. The country also grapples with substantial external financing needs and volatile commercial financing flows. High inflation and persistent geopolitical risks further threaten macroeconomic stability. However, external buffers have been replenished in recent months, bolstered by a surge in foreign investment in the first quarter of 2024, particularly from the Ras El-Hekma project, signalling continued support from the UAE. As a result, international reserves increased by $12.4 billion since the beginning of 2024, reaching $45.5 billion by the end of March 2025. The banking sector has shown resilience, with the net foreign asset recovering to a surplus before dipping into a $1.9 billion deficit in February 2025. This shift, Fitch said, was driven by moderate capital outflows, which in turn helped limit currency depreciation. Current account deficit set to widen Looking ahead, Fitch forecasts Egypt's current account deficit will widen slightly in the 2024/25 fiscal year, which ends in June 2025, reaching 5.6 percent of GDP. It is expected to narrow to 4 percent in 2025/26, supported by a gradual recovery in the energy sector, renewed investment from international energy companies, and access to cheaper gas imports. Foreign investment outlook improves On the impact of newly imposed US tariffs, Fitch noted Egypt's limited exposure and relatively low dependency on US economic aid, which helps mitigate certain external risks. Foreign direct investment (FDI) is projected to rise to $15 billion — or 3.8 percent of GDP — in 2025/26, driven primarily by fresh real estate investments from Gulf Cooperation Council (GCC) countries. Geopolitical risks cloud outlook The report cautioned that regional geopolitical tensions remain a key risk, with conflict-related disruptions contributing to a decline in Suez Canal revenues. Fitch projects these revenues will only partially recover — reaching 60 percent of their 2023 levels by fiscal year 2025/26. Tourism, however, has shown surprising resilience, with revenues expected to rise by 9 percent in 2025/26, following a 5 percent increase in 2023/24. Nevertheless, any escalation in regional conflict could moderately impact the sector. Domestically, Egypt continues to face high inflation, youth unemployment, and governance challenges, raising the risk of social instability. Nonetheless, the Central Bank of Egypt (CBE) has shown greater flexibility in its exchange rate policy since the currency depreciation of 6 March 2024, resulting in reduced exchange rate volatility. Budget deficit to widen, despite revenue gains Fitch expects the general government deficit to widen to 7.4 percent of GDP in 2024/25 due to high debt servicing costs and the absence of one-off revenues seen in the previous year. While tax revenues have increased — thanks to improved compliance and reduced exemptions — the government is planning additional VAT-focused revenue measures in 2025/26, which could help moderate the deficit. The report also flagged concerns over off-budget spending and contingent liabilities from the broader public sector. Fitch, however, also highlighted ongoing uncertainty about the government's commitment to sustained fiscal discipline. Public debt forecast to decline Egypt's public debt remains elevated but is projected to fall to 80.4 percent of GDP by the end of fiscal year 2025/26, down from 89.4 percent in the current year. While this marks progress, it remains significantly above the median for countries rated 'B'. Inflation has sharply declined, dropping to 13.6 percent in March from 24 percent in January. It is expected to rise slightly to 14 percent by the end of 2024/25, mainly due to further cuts in fuel subsidies. Fitch anticipates the CBE will begin cutting its key interest rate — currently at 27.25 percent — by the end of 2025/26, easing pressure from debt servicing costs. The banking sector, supported by strong deposit growth and a low loan-to-deposit ratio, is also positioned for expansion. Ratings outlook Fitch outlined several factors that could influence Egypt's future rating. Downside risks include worsening external finances, increased debt sustainability concerns, and escalating regional conflict. On the other hand, improvements in external stability, credible fiscal reforms, and progress on structural economic changes could lead to a positive rating action.
Al-Ahram Weekly
04-03-2025
- Business
- Al-Ahram Weekly
Egypt net int'l reserves jump to $47.4 bln by end of February: CBE - Economy
The Central Bank of Egypt (CBE) announced Tuesday that the country's net international reserves (NIRs) climbed to $47.4 billion at the end of February, up from $47.26 billion in January. This marks the highest reserve level recorded since data tracking began in 1992, continuing a steady upward trend since September 2022. NIRs, which encompass foreign currencies, gold, and other financial assets after deducting foreign liabilities, are a crucial measure of a nation's ability to meet international financial commitments. They provide vital support for stabilizing the national currency, funding imports, and servicing external debt during economic uncertainty. This latest increase follows a consistent rise in reserves over recent months. In December 2024, NIRs reached a record $47.1 billion, a $157 million increase from November. Egypt's foreign exchange reserves grew by $11.9 billion year-on-year in 2024, significantly surpassing the $35.22 billion recorded in December 2023. The International Monetary Fund's (IMF) third review of Egypt's financial programme projected further growth, anticipating NIRs would climb to $66.5 billion by FY2028/2029. Egypt has also strengthened its financial position through major funding agreements, including securing $57 billion in financial packages from international institutions and development partners. Furthermore, Egypt finalized a $35 billion deal for the Ras El-Hekma project in 2024, marking its most significant foreign direct investment (FDI) in history. The country also received the third tranche of its $8 billion IMF loan in July 2024 and a 1 billion euro payment in March as part of its 7.4 billion euro agreement with the European Union. Follow us on: Facebook Instagram Whatsapp Short link:
Al-Ahram Weekly
11-02-2025
- Business
- Al-Ahram Weekly
Egypt external debt jumps 1.5% in Q1 FY24/25 for 1st time since June 2024 - Economy
The external debt rose by 1.5 percent during the first quarter (Q1) of the current fiscal year (FY) 2024/2025 (July-September 2024) compared to Q4 of FY2023/2024, marking the first rise since Q2 of the previous fiscal year, the Central Bank of Egypt's (CBE) latest data indicated. The CBE data showed that the external debt increased by $2.32 billion by the end of Q1 of FY2024/2025 to approximately $155.2 billion, compared to about $152.88 billion in Q4 of FY2023/2024. This is the first rise since Q2 of FY2023/2024 (October-December 2023), when the external debt jumped to about $168 billion. The increase came despite Egypt's inflows from the $35 billion Ras El-Hekma deal, the country's most significant foreign direct investment (FDI) deal ever. After signing that deal with the UAE, Egypt's debt decreased by about $14 billion from January to June 2024, the second half of FY2023/2024. During the first half of FY2023/2024, Egypt received $24 billion from the UAE and settled $11 billion in Emirati deposits owed to it, which contributed to reducing its external debt. Per the CBE data, long-term external debt also increased by approximately $678 million during Q1 of FY2024/2025, reaching about $127.358 billion by the end of September 2024, up from approximately $126.68 billion posted by the end of June. Similarly, short-term external debt rose by approximately $1.641 billion during Q1 of FY2024/2025, reaching about $27.661 billion by the end of September 2024, compared to about $26.02 billion by the end of June. Moreover, the central bank data indicated that the external debt rise resulted from the increase in debt in other unspecified sectors by about $1.704 billion, reaching approximately $19.07 billion by the end of September 2024, up from about $17.366 billion in Q4 of FY2023/2024. Additionally, the government's external debt increased by about $196 million during Q1 of FY2024/2025, reaching $80.374 billion by the end of September 2024, compared to about $80.178 billion in Q4 of FY2023/2024. This explains why the country's external debt is increasing again in Q1 of FY2024/2025. Egypt has engaged in an $8 billion Extended Fund Facility (EFF) loan deal with the International Monetary Fund (IMF). The fourth review of the loan programme was scheduled for the end of January, but it is still pending the approval of the IMF's executive board. After reaching a staff-level agreement on this review, IMF Mission Chief to Egypt Ivanna Vladkova Hollar said the Egyptian authorities have requested to recalibrate their medium-term fiscal commitments due to difficult external conditions and a challenging domestic economic environment. Short link:
