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Egypt secures the largest investment in its history and paves the way for an IMF package

EHSAN KHOMAN
Head of Commodities, ESG and
Emerging Markets Research –
EMEA
DIFC Branch – Dubai
T:+971 (4)387 5033
E: ehsan.khoman@ae.mufg.jp

RAMYA RS
Analyst
DIFC Branch – Dubai
T:+971 (4)387 5031
E: ramya.rs@ae.mufg.jp

LEE HARDMAN
Senior Currency Analyst
Global Markets Research
Global Markets Division for EMEA
T: +44(0)20 577 1968
E: lee.hardman@uk.mufg.jp

PAUL FAWDRY
Head of Emerging Markets FX Desk
Emerging Markets Trading Desk
T: +44(0)20 577 1804
E: paul.fawdry@uk.mufg.jp 

MUFG Bank, Ltd.
A member of MUFG, a global financial group

Macro focus

On 23 February, Egypt and the UAE signed the biggest investment deal in Egypt’s history worth USD35bn that will comprise a major tourism, urban development, and infrastructure project in Ras el Hekma on Egypt’s Mediterranean coast. According to Egypt’s Prime Minister, Dr. Madbouly, the UAE will make an up-front payment for the land via two tranches: (i) USD15bn payment by the UAE due this week through a USD5bn conversion of Central Bank of UAE (CBUAE) deposits and USD10bn of “fresh” dollars; and (ii) USD20bn due within two months through a USD6bn conversion of CBUAE deposits and USD14bn of “fresh” dollars. The sheer quantum of the investment is far greater than what markets had been anticipating and signifies significant momentum in the privatisation programme, which thus far has secured USD5.6bn between April 2022 to December 2023 from selling stakes in 14 state-owned companies – and the Ministry of Finance’s divestment target was announced at USD6.5bn this year. On net, we believe this deal – alongside an upsized IMF programme that is now likely imminent – should provide ample liquidity to cover the sovereign’s financing requirements until the end of 2027. It also paves the way for the long-awaited FX adjustment – which given the magnitude of investments announced, implies a milder devaluation than current futures pricing.

FX views

The strong USD narrative is not over yet, with US exceptionalism continuing. Data is coming in stronger than market expectations, and Fed speakers have evolved to acknowledge there appears to be no rush to pivot towards an accommodative stance. Meanwhile, in EMs, CEE FX have strengthened given monetary policy divergence and the respective structural stories, especially in Poland, driven by an improving external balance backdrop owing to the unblocking of EU funds.

Week in review

Turkey kept rates on hold at 45.00%. South Africa January CPI came in at 5.3% y/y, while Israeli Q4 GDP came in at -19.4% y/y.

Week ahead

Central bank meetings on scheduled in Israel (25bp cut to 4.25%), Nigeria (200bp hike to 20.75%), Hungary (100bp cut to 9.00%). Q4 GDP data is expected to be released for Czech Republic and Turkey.

Forecasts at a glance

Growth across the EM universe is set to stabilise as domestic fundamentals offset external drags, with some rotation from the largest to smaller EMs. Inflation and interest rates are both “over the hump” – disinflation is progressing, and the decline in rates will continue and broaden in 2024 (see here).

Core indicators

EM securities attracted USD2.9bn in the week ending 16 February - equity and debt flows were USD2.9bn and USD0.1bn, respectively.