Bullish con­sen­sus on Egypt’s eco­nomic sta­bil­i­sa­tion: Bank of Amer­ica Mer­rill Lynch

The Daily News Egypt - - BUSINESS - By Mo­hamed Samir

A bullish con­sen­sus on the Egyp­tian econ­omy was ex­pressed at the recent IMF and World Bank an­nual Spring Meet­ings in Wash­ing­ton DC about the prospects for emerg­ing mar­kets, ac­cord­ing to Bank of Amer­ica Mer­rill Lynch’s Emerg­ing In­sight re­port is­sued on Mon­day.

The re­port cited Egypt’s meet­ings as con­firm­ing the bank’s view that the macro sta­bil­i­sa­tion of the Egyp­tian econ­omy con­tin­ues and that re­form mo­men­tum is in­tact with­out hes­i­ta­tions. This can be seen in the government’s de­ci­sion to elim­i­nate all fuel sub­si­dies (ex­cept LPG), and an au­to­matic fuel price in­dex­a­tion mech­a­nism is likely to be in­tro­duced by De­cem­ber or the end of the fis­cal year.

The planned petroleum prod­uct sub­si­dies al­lo­ca­tion for fis­cal year (FY) 2018/19 ac­counted for EGP 89.75bn com­pared to EGP 110bn in the FY 2017/18 budget, while electricity sub­si­dies reg­is­tered at EGP 16bn, down from EGP 30bn in the same pe­riod, in the draft budget sent to par­lia­ment for ap­proval.

Fur­ther­more, the Egyp­tian government is on track to achieve a small 0.2% of GDP primary sur­plus in FY 2017/18.The au­thor­i­ties aim to bring the primary sur­plus to 2% of GDP next fis­cal year, and main­tain it there go­ing for­ward, the re­port in­di­cates.

The bank be­lieves that var­i­ous other fac­tors played a role in the un­chal­lenged con­fi­dence in the Egyp­tian econ­omy,as next year’s fis­cal ad­just­ment will in­clude electricity sub­sidy re­form, wage bill con­trol, and im­proved tax mo­bil­i­sa­tion.

The Cen­tral Bank of Egypt (CBE)’s main­te­nance of a grad­ual, data-de­pen­dent, eas­ing stance, along with the fo­cus on sea­son­ally-ad­justed in­fla­tion fig­ures, sug­gests that the CBE could pause any fur­ther re­duc­tion in in­ter­est rates ahead of pos­si­ble fuel sub­sidy re­form in July, the bank fore­casted.

Con­se­quently, this would mean a to­tal eas­ing of up to 300 ba­sis points (bps) this fis­cal year, ver­sus their ear­lier ex­pec­ta­tions of 400 bps, the re­port in­di­cated.

In sum­mary, the re­port con­cludes that, with re­gard to Europe, the Mid­dle East, and Africa re­gion, the bullish con­sen­sus on Egypt,‎ es­pe­cially with re­gards to T-bills and ex­ter­nal credit, and Rus­sian rou­ble, felt largely con­firmed in DC.

Mean­while, on Turk­ish lira and Ukrainian credit, DC brought some wrin­kles to worry about, such as fis­cal stim­u­lus and pen­sion and gas re­form. How­ever, market par­tic­i­pants are cur­rently in a mood to ig­nore these warn­ings.‎

On the other hand, a neg­a­tive con­sen­sus emerged in South Africa rel­a­tive to other high yield­ers, but its ab­so­lute po­si­tion­ing is still high con­sid­er­ing the ma­jor in­dex risk in 2018.

Sub-Sa­ha­ran Africa, es­pe­cially Ghana and Nige­ria, is the main hunt­ing ground for new in­vest­ment ideas among high yield­ers.

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