Egypt's ongoing fiscal reforms and improving tax collection will help narrow the high fiscal deficits, but public debt levels will remain high, S&P Global Ratings revealed on Saturday. The report expects that FDI inflows (primarily into the energy sector) will cover Egypt's steadily narrowing current account deficits. Likewise, it said fiscal consolidation is likely to continue even after the end of the International Monetary Fund (IMF) program in November 2019, although still-high interest costs and social spending pressures could slow the pace. It noted that the Central Bank of Egypt's (CBEs) decision to end the repatriation mechanism will help improve exchange rate flexibility. The stable outlook balances S&P Global Ratings' expectation that Egypt's current account deficits will remain as a smaller percentage of GDP and that growth prospects will remain strong, against risks of fiscal slippages and an increase in the already-large stock of relatively short-dated government debt issued at high further rates. S&P said further that a positive rating action is likely if Egypt's economic expansion significantly outperforms the forecasts, if larger-than-anticipated improvements in the current account position sharply reduce Egypt's external financing requirements and external debt levels, and if Egypt's reform program materially reduces government debt. "Our ratings on Egypt reflect strong GDP growth prospects and lower external pressures, underpinned by the implementation of fiscal and economic reforms, which have accompanied a three-year $12 billion IMF Extended Fund Facility program ending in 2019. We also believe that Egypt's monetary framework is gradually improving from a weak base." Nevertheless, the ratings remain constrained by wide fiscal deficits, large public debt stock, and low-income levels. We estimate that Egypt's economy will expand by 5.3% in real terms in fiscal 2019 (ending June 30, 2019). This is broadly in line with the previous year but underscores recovery from an average of 3% annually over fiscal 2011-2017. This improvement stems from broad-based growth across several sectors, particularly natural gas, manufacturing, tourism, and construction. The Zohr gas field is currently producing 2.1 billion cubic feet per day (bcf/day), adding to Egypt's overall gas production of about 6.8 bcf/day, and is expected to reach peak production by the end of this year at 3.2 bcf/day. Higher production has enabled Egypt to achieve a small surplus of $150 million on the oil trade balance over July-December 2019, for the first time in four years. S&P forecast that the Egyptian economy will continue to post real GDP growth of around 5.5% annually, or around 2.4% on a per capita basis over the next three years. "We project greater investment due to a robust pipeline of projects, increasing natural gas production, and a rebound in tourism. The current pipeline of infrastructure spending – including the New Suez Canal Economic Zone, the new administrative capital city (45 kilometers east of Cairo), and expansion of the national road network — is also likely to sustain growth in the construction sector. Growth in non-hydrocarbon exports, however, has lagged despite a more competitive exchange rate. Egypt's economy will expand by 5.3% in real terms in fiscal 2019 (ending June 30, 2019). This is broadly in line with the previous year but underscores recovery from an average of 3% annually over fiscal 2011-2017. This improvement stems from broad-based growth across several sectors, particularly natural gas, manufacturing, tourism, and construction. The Zohr gas field is currently producing 2.1 billion cubic feet per day (bcf/day), adding to Egypt's overall gas production of about 6.8 bcf/day, and is expected to reach peak production by the end of this year at 3.2 bcf/day. Higher production has enabled Egypt to achieve a small surplus of $150 million on the oil trade balance over July-December 2019, for the first time in four years. — SG div class=" simple-translate-button" style="background-image:url("moz-extension://1eb291e5-1d94-5949-827b-2f1c78b90df1/icons/512.png"); height:22px; left:-29px; top:13px; width:22px"
