Egypt Macroeconomic Update

1 Money
Central
Market
Bank &
of FX
Egypt
Unit
Outline

I. Homegrown Reform Program

II. Successful IMF Experience
III. External Balance
IV. Risk Profile
V. Inflation
VI. GDP
VII.Interest Rates
VIII.Financial Soundness Indicators
IX. COVID-19 Developments

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Money Bank &
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Egypt
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I. Homegrown Reform Program

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Money Bank &
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Main Pillars of the Reform Program

1 2 3
Inclusion Growth Jobs
▪ Higher growth and raise
potential growth
▪ Improved targeting of social
▪ Private sector-led
transfers and subsidies ▪ Enhanced Job-creation
▪ Higher productivity activities
▪ Improved quality of services ▪ Productive jobs
with a focus on tradeables
▪ Equal opportunities ▪ Higher productivity
▪ Upgrade infrastructure and
▪ Improved skills
extend to lagging and remote
areas

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Homegrown Reform Program
▪ Egypt developed a
comprehensive homegrown
reform program that aimed
to address the macro
imbalances that held back
Egypt’s growth potential. ✓ ✓ ✓
▪ The program consisted of Liberalization of Foreign Maintaining Financial Stability
deep structural reforms that Strong Fiscal Consolidation
would ensure a robust and Exchange Regime of the Banking Sector
stable macroeconomic
environment.
▪ In turn, Egypt then sought
the IMF’s vote of
confidence in order to prove ✓ ✓ ✓
its unwavering commitment
to reform. Reinforcing our price stability Strengthening Social Safety
Financial Inclusion
Mandate Nets

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Money Bank &
Market of FX
Egypt
Unit
II. Successful IMF Program

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Money Bank &
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Successful Completion of the IMF Program (2016-2019)
Egypt has successfully completed the three-year arrangement under the
Extended Fund Facility and achieved its main objectives.

As of July 24, 2019, the Executive Board of the IMF completed the final review of
Egypt’s economic reform program supported by an agreement under the Extended
Fund Facility (“EFF”).
This lead to the disbursement of the remaining USD 2 bn tranche.
Bringing total disbursement to about USD 11.9 bn
“The 2018/19 primary surplus target of 2 percent of GDP was met, helping to
anchor a further decline in the public-debt-to-GDP ratio .”
“The elimination of most fuel subsidies, which are regressive,
will encourage energy efficiency, help protect the budget from
unexpected changes in oil prices, and free up fiscal space for
social spending.”

David Lipton , IMF MD & COB

“Egypt has successfully completed the three-year arrangement under

the Extended Fund Facility and achieved its main objectives. The
macroeconomic situation has improved markedly since 2016, supported
““The outlook remains favorable and provides an opportune
by the authorities’ strong ownership of their reform program and decisive
juncture to further advance structural reforms to support more
upfront policy actions. Critical macroeconomic reforms have been successful in
inclusive private-sector led growth and job creation.”
correcting large external and domestic imbalances, achieving macroeconomic
stabilization and a recovery in growth and employment, and putting public debt on a
David Lipton , IMF MD & COB
clearly declining trajectory.”

David Lipton, IMF MD & COB

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Money Bank &
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Unit
Secured Two Back to Back Programs (2020- )
Because of Egypt’s credibility and success in the first program, the IMF
was readily prepared to offer Egypt support under the RFI & SBA agreements.

USD 2.77 bn USD 5.2 bn

RFI SBA

Egypt was granted a request for Egypt was also granted access to a 12-
emergency financial assistance in May month SBA in June 2020, to address
2020 to meet the urgent balance of balance of payments financing needs
payments needs stemming from the arising from the COVID-19
outbreak of COVID-19. pandemic.

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Money Bank &
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III. External Balance

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Money Bank &
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NIR June 2016-June 2021 (USD mn)
▪ Post the FX regime liberalization and 50,000
reform implementation program, the
NIR jumped from USD 23.1bn in
November 2016 to reach USD 45.4 bn 45,000
by the of 2019.
Jul-21, 40,609
▪ NIR dropped slightly in March, April,
and May of 2020 on the back of a 40,000
series of outflows due to the global
pandemic.
35,000
▪ Egypt’s FX Reserves are currently
standing at a healthy level and are
expected to further improve. In fact, 30,000
as per the latest IMF forecasts,
Reserves are expected to continue this
increasing trend (reaching USD 52 bn 25,000
in June 2025) allowing for more
buffers in case of any global shocks.
20,000

15,000

10,000

5,000

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Money Bank &
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Egypt
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 BoP (1/3)
Overall Balance Current Account Capital & Financial Account
2000 1,535.20 0 50% 12,000

30% 10,000 9,172.40

1000 (1,000)
248.70 227.30 183.60 8,000
25% 10%
0 (2,000)
6,000 5,234.10
(69.20) -10% 10,168.60
(3,000)
(1000) 4,000
-30%
(4,000) 2,000
(2000) -31% 273.60 140.50
-50%
(5,000) (4,574.20) 0
(3000) -70%
-64% (2,000)
(6,000)
(3,473.10) -90% (7,580.90)
(4000) (4,000)
(7,000) (6,592.50) -110% (6,000)
(5000)
(8,000) (7,634.20) -130% (8,000)
(6000) (5,525.00)
(9,000) -150% (10,000)
1H FY19/20 2H FY19/20 1H FY20/21 1H FY19/20 2H FY19/20 1H FY20/21

Current Account Balance Semi-Annual Tourism Δ (RHS) Capital & Financial Account Portfolio Investment in Egypt (net)

Overall Balance showed a surplus of USD 1.5bn in Q2
of FY 2020/2021, which is strongly positive. This
surplus comes following 3 consecutive quarters of
deficits, which followed quarters that were at low
surpluses prior.
The current account deficit rose by 66.9% to USD
7.6bn against USD 4.6bn in the corresponding period
last year. This was due largely to travel restrictions
triggered by the pandemic, causing momentary
disruptions in the tourism sector.
Net inflows into the capital & financial account
increased by 75.2% to USD 9.2bn against USD 5.2bn in
the corresponding period last year. This reflects the
large improvement in foreign portfolio investment in
Egypt. Investor confidence in Egypt was exhibited once
again with easing in the global market place supporting
flows to the economy.

Source: CBE; Figures are in USD millions

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Money Bank &
Market of FX
Egypt
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 BoP (2/3)
Remittances Oil Trade Balance Non-Oil Trade Balance
16,000 500 20,000
15,521.40 312.30
15,500 10,000
300
9,206.10 8,690.00 9,337.60
0
15,000
100
(10,000) (17,970.70) (18,073.40) (19,149.00)
14,500
14,081.50 (100) (54.20) (20,000)
14,000
13,676.50 (30,000)
(300) (27,176.80) (26,763.40)
(28,486.60)
13,500
(40,000)
(500)
13,000 (50,000)
(700)
12,500 (60,000)
1H FY19/20 2H FY19/20 1H FY20/21 (733.30) 1H FY19/20 2H FY19/20 1H FY20/21
(900)
Workers Remittances 1H FY19/20 2H FY19/20 1H FY20/21 Non-Oil Trade Balance Other Exports Other Imports

Workers’ remittances increased by 13.5% to post USD
15.5bn compared to USD 13.7bn in the same period last
year. The increase shows the stability and strength of
worker’s flows from abroad despite the concerning
COVID-19 pandemic’s toll on global employment.
The oil trade deficit improved to record only USD
54.2mn compared to USD 733.3mn in the same period
last year. This was owed to a decline in oil imports,
which reflected the slump in world prices. This
outweighed previous declines in exports and helped
Egypt record a timider deficit.
The Non-Oil trade balance widened by 6.6% (USD
1.2bn) to record USD 19.1bn. This was largely due to
higher non-oil imports by USD 1.3bn to register USD
28.5bn. The rise was concentrated in the imports of
medicines and spare parts and accessories for cars. On
the other hand, in terms of exports we saw a significant
increase in non-oil exports, largely on the back of
increased gold exports.

Source: CBE; Figures are in USD millions

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Money Bank &
Market of FX
Egypt
Unit
BoP (3/3)
Income Balance FDI’s
600 520.60 421.50 123.10 8000

6000
(1,400)

(5,560.40) (5,445.80) 4000

(5,793.60)
(3,400)
2000
(5,400) 0

(7,400) (2000)
(5,981.90) (5,568.90)
(6,314.20) (4000)
(9,400)
(6000)
(11,400)
(8000)

(13,400) (10000)
1H FY19/20 2H FY19/20 1H FY20/21 Oct/Dec-19 Jan/Mar-20 Apr/Jun-20 Jul/Sep-20 Oct/Dec-20
Income Balance Income receipts Income Payments Financial Account Foreign Direct Investment Portfolio Investment in Egypt

Income balance deficit narrowed on an annual basis by
USD 347.8mn from USD 5.8 bn in the first half of FY
2019/2020 to USD 5.5 bn in the first half of FY
2020/2021. This was due to a fall in income payments,
which were on the back of lower profits from foreign
oil firms operating in Egypt after oil prices dropped, as
well as lower retained earnings as they were reinvested
in the capital of their companies.
Financial account inflows improved both quarterly and
annually, registering USD 5.3bn in Q2 of FY2020/2021,
up from USD 4.0bn in Q1 of FY2020/2021 and USD
4.6bn in Q2 of FY2019/2020. This was made possible
through stable inflows from FDIs as well as FPIs which
increased compared to last year’s level although declined
QoQ.

Source: CBE; Figures are in USD millions

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Money Bank &
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IV. Risk Profile

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Money Bank &
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Credit Ratings
▪ Egypt was reaffirmed by
all three Credit Rating
agencies amid an
onslaught of global
downgrades.

Fitch S&P Moody’s

B+ with stable outlook B with stable outlook in B2 with stable outlook

in March 2021 May 2021 in May 2020

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Money Bank &
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V. Inflation

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Money Bank &
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Headline Inflation
▪ CBE has successfully been able to 35.0%
lower inflation from highs greater than 33.0%
30% witnessed during mid-2017, after
the liberalization of the EGP and the
start of the Reform Program.
30.0%
▪ Annual headline inflation has
continued to record single digits since
June 2019 and has remained below 6%
since February 2020. 25.0%

20.0%

15.0%

10.0%

4.9%
5.0%

0.0%

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Money Bank &
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Egypt
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VI. GDP

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Money Bank &
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Unit
GDP Growth
▪ GDP was far off from a contraction 7.00%
last fiscal year despite COVID-19
shocks, evident in the fact that figures
indicate that there was a growth in FY
19/20 GDP of 3.6%. This is backed 6.00%
by strength in the communications,
real estate, and health industries.
5.00%
▪ This shows the strength of
macroeconomic fundamentals, despite
weakening tourism.
4.00%
▪ GDP growth has also shown a
sustainable rebound on the back of
support from consumption, which 3.00%
more than offset the combined
negative effect of gross domestic
investments and net exports. 2.00%
2.00%

1.00%

0.00%
Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec
16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 19 20 20 20 20

-1.00%

-2.00%

-3.00%

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Money Bank &
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VII. Interest Rates

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Money Bank &
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Mid-Corridor Rate
▪ The CBE took a set of preemptive 20.00%
measures to help support domestic 19.25%
economic activity and to ease the
negative impact of the COVID-19
outbreak. These measures included
cutting key policy rates by 300 bps 18.00%
on 16th of March 2020.

▪ The CBE then proceeded by holding

rates for four consecutive meetings
followed by a cut of 50 basis points on
24th of September 2020; and a similar 16.00%
cut of 50 basis points on the 12th of
November 2020.

▪ For the final meeting of the year rates

were left unchanged. 14.00%

12.00%

10.00%

8.75%

8.00%

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Money Bank &
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VIII. Financial Soundness Indicators

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FSI’s (1/2)
▪ Since the successful completion of the
banking sector reform program that Capital Adequacy December 2020 Asset Quality December 2020
started in 2004, the Egyptian banking
sector has exhibited great resilience
and withstood more than one crisis. Capital Base/Risk Weighted
19.5 Non-performing Loans /
▪ CBE stays abreast with the
Assets 3.6
Total Loans
international best practices to
continuously improve the quality of
banking supervision on both the micro Tier 1 Capital / Risk-
and macro levels. 17.1
Weighted Assets1
Loan Provisions / Non-
▪ The banking system remains well- 96.0
positioned to handle stress, with most performing Loans
recent data showing that, at an Common Equity / Risk-
aggregate level, the banking system is 12.6
liquid and well capitalized, with strong Weighted Assets2
profitability and asset quality. Loans to Private Sector /
60.0
▪ All soundness indicators are reflecting Loans to Customers
very healthy signs of profitability,
Financial Leverage3 7.3
liquidity and solvency.

▪ Banks are well aligned with Basel Earnings December 2020

requirements and IFRS 9 has been
introduced as of January 2019.
Return on Average Assets4 1.8

Return on Average Equity4 23.4

Net Interest Margin4 4.1

1The Going concern capital including conservation buffer should not be less than 6.625%, 7.25%, 7.875% and 8.5% in 2016, 2017, 2018 & 2019, respectively.
2Common equity including the conservation buffer should not be less than 5.125%, 5.75%, 6.375% and 7.0% in 2016, 2017, 2018 & 2019, respectively.
3The percentage is with a lower margin stated by 3.0%.
4As per latest approved fiscal year 2019.

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Money Bank &
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Egypt
Unit
FSI’s (2/2)
Liquidity December 2020
Average Liquidity Ratio: Local Currency 49.9
Average Liquidity Ratio: Foreign Currency 77.6
LCR: Local Currency1 1071.2
LCR: Foreign Currency1 242.1
NSFR: Total Local Currency & Foreign Currency1 232.3
NSFR: Local Currency1 252.9
NSFR: Foreign Currency1 167.7
Securities/Assets2 24.2
Deposits/Assets 73.9
Loans/Deposits: Total Local Currency & Foreign Currency 48.2
Loans/Deposits: Local Currency 44.5
Loans/Deposits: Foreign Currency 70.3
Net open position in foreign currencies to Capital Base3 0.4
1Both percentages are mandatory on a quarterly basis as follows:
- LCR per local currency and foreign currencies is 90% and 100% for 2018 & 2019, respectively.
- NSFR equal to at least 100% for all currencies (local currency and foreign currencies) and per local currency and foreign currencies.
2Excluding Egyptian T-Bills
3Total net open (short or long) positions for all foreign currencies shouldn't exceed 20% of the capital base.

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IX. COVID-19 Developments

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CBE Initiatives to Combat COVID-19 (1/2)
Interest Rate Cuts
Cut key policy rates by 300
basis points in March 2020.
Further cuts in key policy
rates by a cumulative 100
basis points in September
and November 2020.
Credit Initiatives
EGP 100 billion to the industrial, agricultural, Increasing the amount allocated to support the
private construction sectors, and manufacturing tourism sector to EGP 50 billion from EGP 5 billion
at 8% (declining interest), that has been recently with a preferential interest rate of 8% (declining
increased to EGP 200 billion. Furthermore, interest) over 15 years.
some EGP1.2 billion of the newly allocated
EGP100 billion will be allocated to finance the
rescheduling of debt for ceramic and porcelain CBE initiative to finance small enterprises whose annual
factories that is owed to the natural gas turnover ranges from EGP 1 million up to less than
companies, in accordance with the prime EGP 50 million still applies with 5% interest.
minister’s decision, subject to several conditions.
Recent guidance by the President to allocate EGP 100 billion, at 3% (declining interest) and 30-years
tenor for low- and middle-income classes.

Amendment of Credit Registry Rules

Decreasing the disclosure period of historical data Canceling the black list for enterprises, and the negative list for individuals.
(after repayment) on the non-performing clients.

Lifting the ban on dealing with non-performing Removing the data on non-performing individuals below a certain threshold
clients (within specific categories). (EGP 1000).

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Money Bank &
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Egypt
Unit
CBE Initiatives to Combat COVID-19 (2/2)
Liquidity
6-month repayment moratorium
on existing credit facilities for
individuals ,corporations and
SMEs without extra fees.
Launching an EGP 20 billion
stock purchase program to
support the Egyptian Stock
Exchange.
Increasing the number of
electronic point of acceptances
and increasing the number of
ATMs in all governorates.
Providing credit to finance the
imports of the strategic
commodities.
Initiatives for Non-Performing Companies and Individuals
Aid non-performing companies, with bad
and doubtful debts and outstanding debt
balance less than EGP 10 million
(without marginal interest), whether legal
procedures are taken against them or not.
Companies that pay a percentage of their
outstanding debt, they would be removed
from the non-performing loans list. Have
all current and exchanged legal cases
waived and release of all guarantees that
were held to secure the debt.
27
Aid to on non-performing individuals
with an outstanding debt (without
marginal interest rates) in all banks of
less than EGP 1 million (excluding credit
cards’ dues).
For individuals under this initiative, all
current and exchanged legal cases was
waived. The ban on dealing with these
clients was lifted and the guarantees
securing those debts were released when
the client paid 50% of the net
outstanding debt balance without the
marginal interest during the period until
31/03/2021.
Central
Money Bank &
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Egypt
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