We expect the IMF to approve, in the coming weeks, the Egyptian authorities’ request for financial assistance through a Rapid Financing Instrument (RFI) and a Stand-By Arrangement (SBA). This financial support package would help strengthen confidence in the economy and meet large financing needs.
Our MENA growth forecast stands at -0.3% with additional downside risks and high uncertainty over the duration of the shutdown and an additional potential fall on oil prices. We project recession in most oil exporters, the lowest growth in oil importers since the early 1990s, and wide twin deficits.
The extra 0.5 mbd cut may not be enough to rein in projected oversupply in 2020, since the OPEC+ bloc has already made cuts well beyond the 1.2 mbd target of the previous agreement. Consequently, we expect a decline in average Brent oil prices to $60 a barrel in 2020.
Non-resident capital inflows to the MENA region are projected to rise from $165bn last year to $200bn in 2019 before moderating to $173bn in 2020. With the increasing inflows, inclusion into global indices, and ongoing reforms, the MENA region is becoming more prominent on the EM investment map.
We expect growth in the MENA region to slow to 1.4% in 2019 from 1.8% in 2018, dragged down by the deep recession in Iran and the compliance with the OPEC + deal. This aggregate picture, however, hides considerable heterogeneity in economic paths across the region.
Egypt has successfully completed the 3-year EFF arrangement with the IMF. Growth has accelerated, unemployment has decreased, the twin deficits have narrowed, core inflation has fallen, and the public debt ratio has started to decline.
We still expect Brent oil prices to average $65/b in 2019 and $62/b in 2020. Growth in non-OPEC supply combined with deceleration in global oil demand growth in 2019 and 2020, is offsetting upward pressure on oil prices from rising geopolitical tensions that could disrupt supply.
Egypt is making good progress on economic reforms in the context of an IMF-supported program. However, to sustain the progress and to lift the growth trajectory durably over the long term, deeper and more fundamental reforms are urgently needed.