August 13, 2020

HC finds the IMF external account estimates for FY20/21 conservative

Norway

HC: We believe the IMF external account estimates for FY20/21 are more on the conservative side as they reflect c73% y-o-y decline in tourism receipts to USD2.7bn as well as foreign portfolio inflows of USD3.5bn.”

The International Monetary Fund (IMF) expects Egypt’s external funding gap FY20/21 will widen by about a third to USD12.2bn, compared with USD9.2bn a year earlier, as the disruptions caused by the coronavirus pandemic cut into its main sources of foreign currency, it said in its Egypt 12-month Stand-By Arrangement (SBA) report. It anticipates Egypt will cover its funding needs through several sources including the IMF expected to provide USD3.2bn under the SBA and other international financial institutions expected to provide USD2.5bn, in addition to Eurobond sales of USD6.5bn. The IMF said the financing gap has grown on “expectation of weaker FX inflows driven by lower remittances, portfolio flows, and FDI” with the global economic recovery weaker than previously expected. (Bloomberg)

HC’s comment:

We find the IMF external account estimates for FY20/21 more on the conservative side as they reflect c73% y-o-y decline in tourism receipts to USD2.7bn as well as foreign portfolio inflows of USD3.5bn. Given that direct outbound flights from Eastern Europe and Britain to Egypt’s Red Sea resorts are resuming soon, we believe that FY20/21 tourism receipts could exceed the IMF estimates. Likewise, there is circulating news that foreign portfolio inflows into Egyptian treasuries during the first 2 weeks of July amounted to USD3bn, a trend that we expect to continue during the year given the attractive Egyptian T-bills yields coupled with a stable currency. However, as mentioned in the report, the global economic scene remains uncertain which explains the IMF resorting to conservative assumptions, in our view. The IMF praises Egypt’s commitment to the economic reform that started in 2016 which it believes helped the country acquire the trust of different funding institutions and hence expects the government to successfully secure its funding needs in the international market.”

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