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Investing.com – The American investment bank “Morgan Stanley” warned of 3 financing risks that are likely to face the coming period.
The Egyptian economy loses in the battle of the IMF?
financing risks
The Morgan Stanley report indicated that the first risk is represented by Moody’s review of Egypt’s credit rating, which is expected to be issued in late July or early August.
Last May, the famous credit rating agency put Egypt’s ability to meet long-term obligations in foreign and local currency under review with the aim of downgrading the rating. And if the reduction occurs as expected, it would be the second in the current year after it was reduced in February 2023 from B2 to B3.
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The second danger lies in the decision of the International Monetary Fund regarding the first and second revisions of the loan, which the bank expected to complete between September and December, as Egypt concluded with the Fund last December an agreement worth 3 billion and for a period of 46 months.
Under the program, it was planned to conduct two reviews annually, but the first review, which was planned to be implemented last March, was postponed with the Egyptian government’s slow implementation of the agreed reforms, including Egypt’s commitment to a flexible exchange rate for the Egyptian currency, which caused delays in the implementation of the reforms. The country is on the second tranche of the loan.
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As for the third danger referred to by the investment bank, it is the suspension of the Black Sea initiative to transfer grain, which is the Ukrainian grain agreement that Russia announced its withdrawal from earlier this July, with Moscow stipulating the implementation of 5 demands to return to the deal once it is fulfilled.
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Floating the Egyptian pound.. Fund conditions
Morgan Stanley expects that the exchange rate of the Egyptian pound against foreign currencies will be adjusted during next September or October, that is, around the time of the first and second reviews of the International Monetary Fund.
The bank also indicated that progress in the IMF program would be important for the Egyptian government, which is seeking to secure financing from the fund, but that the first review is still pending.
It is worth noting that floating the exchange rate of the Egyptian pound against foreign currencies is one of the most important conditions of the IMF that were agreed upon with the Egyptian government, and for this reason the first review was not conducted last March as planned, according to expert estimates.
Morgan Stanley expects to complete the first and second reviews between September and December.
interest forecast
The report stated that the Central Bank of Egypt is likely to keep the interest rate unchanged at its next meeting scheduled for next Thursday at 18.25%, despite the recent acceleration of annual inflation to a historically high level of 35.7%.
The investment bank attributed its expectations to the positive news regarding initial public offerings and the continuous improvement in the balance of payments.
However, the bank’s expectations indicate that the Central Bank of Egypt may raise interest rates by 200 basis points (2%) at the planned monetary policy meeting in September, to reach 20.25%.
The investment bank believes that further rate hikes may be justified, if Egypt wants to make progress with monetary policy that focuses on gradually curbing inflation, and shifting to a flexible exchange rate system for the pound, as determined by the International Monetary Fund program.
It is noteworthy that the Central Bank of Egypt held 4 meetings since the beginning of this year, during which it raised interest rates on deposits, overnight lending, and the price of the main operation, once in the March meeting, by 200 basis points, to reach 18.25%, 19.25%, and 18.75%, respectively.
2023-07-28 09:12:00
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