MENA Asset Management Survey 2012 - National Bank of Abu Dhabi

Egypt
Economic Background
Uncertainty took its toll
Egypt’s economy has been hit by political uncertainty leading to capital flight and
reduced investment expenditures as well as a worsening in terms of trade due to high
energy prices. In the 2011/2012 financial year, real GDP growth was estimated at
2.2%, up from 1.9% in 2010/2011, but significantly below the 6.2% per annum
average growth rate registered in the preceding five year period. Presidential
elections were held in mid-2012 and a new constitution was adopted in December
through a plebiscite. Parliamentary elections are scheduled to be held in early 2013.
A policy response to domestic unrest has been fiscal expansion. Expenditures rose
by +19.5% y-o-y to US$ 85 billion 33.8% of GDP). Wages (24% of budgetary spending)
and interest expenditures (18% of spending) were both up by +29% y-o-y. Subsidies,
grants, social expenditures (a whopping 40% of expenditures) were up by 22.8% y-o-y.
Consolidated fiscal data estimates put the preliminary actual 2011/2012 cash deficit at
EGP 171 billion (11.2% of GDP). Final draft budget for 2012/2013 spending of EGP
533.7 billion (+13.6% y-o-y equivalent to about US$ 88.4 billion) was announced. Gross
public sector debt rose to an estimated 78.6% of GDP (87% of which was domestic debt)
in 2011/2012 (up from 70% in 2007/2008) as a consequence of chronic budget deficits.
FX receipts adversely affected, but strong workers’ remittances
The current account registered a deficit of US$ 7.9 billion (+30% y-o-y and 3.1% of GDP)
in 2011/2012 driven by a trade deficit of US$ 31.7 billion and an investment account
deficit, while services balance registered a surplus of US$ 12.1 billion and net transfers
were US$ 18.4 billion. Central Bank faced a challenging macroeconomic environment
and acted to maintain the value of the Egyptian Pound and achieved lower inflation
- alas, at the expense of significant reserves. In a fine balancing act, it also assisted
in the finance of the budget deficit directly and indirectly through the banking system.
Egypt applied for a US$ 4.8 billion loan from the International Monetary Fund in August
and an announcement was made in November that an agreement had been reached on
a stand-by arrangement (SBA) and that Egypt’s request for the SBA was to be submitted
to the IMF board. Renewed political tension and delay in some austerity measures led to
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