A recent report suggested that Egypt would achieve a surplus in external financing of about USD26.5 billion over the next four years, compared to previous expectations of a deficit of USD13 billion in February. Goldman Sachs Bank indicated that this was achieved thanks to four measures taken by the Egyptian government in the first quarter of the year. These measures include the UAE's investment in the Ras El Hekma project on the Egyptian northern coast, the devaluation of the pound, the increase in interest rates, and the signing of an enhanced agreement with the International Monetary Fund (IMF). They all contributed to changing Egypt's financing prospects in the medium term.

Fitch estimated that the foreign exchange inflows, excluding the Ras El Hekma deal, that Egypt has received from foreigners was about USD20 billion since the Egyptian pound last floated in March 2023. According to Egyptian Stock Exchange data, net foreign purchases of government debt instruments from the beginning of March until mid-May this year amounted to about USD16 billion.

However, Fitch also said that when the Ras El Hekma inflows are included, the banks' foreign currency liquidity levels improved with the net foreign asset deficit, decreasing to USD2.8 billion at the end of last March. These inflows were also supported by remittances and the return of other foreign inflows from Saudi Arabia to the local market. The agency expected the net foreign assets' position to return to surplus at the end of the first half of 2024 after completing the second payment of Ras El Hekma and the recovery of remittances and tourism revenues.

Goldman Sachs also attributed its expectations of achieving a financing surplus to the presence of stronger external financing sources under implementation, including net portfolio flows worth approximately USD15 billion since the beginning of March.

Domestic borrowing in the second quarter

Goldman Sachs noted that foreign direct investment to Egypt will likely reach over USD33 billion and is likely to rise at a faster pace than it had expected as the overall economy stabilises and investments in new projects increase. In addition, official inflows into the country, which stopped flowing following the war between Russia and Ukraine in February 2022, have strengthened.

Goldman Sachs explained that this led to a significant improvement in Egypt's external position. Net foreign liabilities in the monetary sector decreased from a peak of USD29 billion in January to USD4 billion by the end of March. It also said that foreign exchange reserves have increased strongly, with the expectation that they will exceed USD60 billion by the end of 2024 with a greater increase in net reserves in light of the conversion of GCC deposits in the Central Bank of Egypt (CBE) into ownership rights in new projects.

Goldman Sachs said that government requirements for domestic borrowing will decline strongly in the second quarter of the year and that the Ministry of Finance sold domestic debt instruments worth EGP2.2 trillion (USD46.080 billion) in the first quarter of 2024, half of which it issued last March after the devaluation of the currency.

For the second quarter of 2024, the report suggested that borrowing requirements would decrease to about EG 900 billion (USD19.148 billion). This is because of factors including the advance financing carried out by the government in the first quarter of the year, the flows resulting from the proceeds of the Ras El Hekma deal, and the decrease in the deficit to about USD200 billion.

Photo: The National Bank of Egypt is the largest bank in Egypt in terms of  assets (by Adobe).