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Friday, 18 February 2011

Egypt - A Possible Glimps into the Future

A recent chart has been making the rounds in the blogosphere, regarding how a future Egypt could look. This chart was originally found on the blog Zero Hedge at, however the main source for charts comes from EFG Hermes a leader investment banking firm in the Middle Easter Region.

This chart lays down a possible path for the future of Egypt during the next 2-3 years. Although charts fail to capture the true complexities of events on the ground or external events, which could effect the development of Egypt.

However for people interested in how the broad economic development could shape Egypt into future, this chart is for you.

Below is an overall summary of the report released by EFG Hermes

We believe the recent political events in Egypt will have a negative short-term impact on the macroeconomic environment, although the events provide hope for a significant move to a more liberalised political and strengthened economic framework in the medium term. We aim to provide some initial guidance on the economic impact of the situation and possible implications for interest rates and the EGP outlook. We highlight, however, that given the high level of uncertainly, this is an initial analysis, and we will refine our view as developments unfold.


Importantly, Hosni Mubarak ceding power to the military on 11 February will speed up the process in restoring economic and political stability and a return to normality, albeit under a transitional political period. We believe it is important to note that when comparing Egypt’s current position to earlier global crises that this is led by political developments and not sparked by a financial or currency crisis. Thus, we believe Egypt will be in a strong position to intervene in the economy, despite the fact that political developments will have a profound impact on the economy, with Egypt having limited fiscal space, even pre-crisis, and inflation stubbornly remaining above 10.0%.

We believe that there are two critical areas of support – the ample FX reserve position and a strengthened banking sector (with improved liquidity and greater NPL coverage) – unlike a financial-led crisis, which places substantial stress on the economy. Vitally, the ample net foreign asset (NFA) position should help to manage any periods of downward pressure on  the EGP and allow a managed weakening of the currency. We believe that a gradual weakening will be an important anchor for the economy, leading to a return of confidence. The FX reserve position allows the Central Bank of Egypt to intervene to ensure ample liquidity in the banking system, if required, to meet the government’s borrowing requirements as external funding comes under pressure.

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