Egypt’s economic gains are still most evident on the external front. The Central Bank of Egypt’s net FX reserves ended 2017 at a record high of $37bn the equivalent of six months of import cover.
Portfolio foreign investment into local treasury bills moderated, but continued to gain,offering support to the external account.
The current account deficit has also narrowed and recorded its smallest quarterly shortfall in three years in Q3 2017, helped by stronger exports,
worker’s remittances, and tourism receipts. This has given the central bank enough confidence to remove some of the last of capital controls implemented to deter outflows in the aftermath of the revolution, as well as increasing the cost of the FX repatriation mechanism that had encouraged foreign investors to return to Egypt.
In other areas, challenges that loomed large not so long ago have started to fade. Inflation, which hit a peak of 33% last July, has started on a downward trajectory that HSBC forecasts will reach 14% by Q4 18. Early production from the Zohr gas field has also commenced on time.
This supergiant gas deposit promises to eliminate Egypt’s need for expensive liquefied natural gas imports.
In this context, the outlook for growth in 2018 looks positive. Easing inflation should allow the central bank to start cutting interest rates from February and encourage growth. The restoration of flights between Russia and Cairo following their two-year suspension will also provide a boost to tourism’s nascent recovery. The improved global growth outlook will also have a positive impact on receipts from the Suez Canal.