Egypt, April 11th 2025

Budget, Inflation and Trump !

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We aim here to bring you regular updates on factors and events impacting financial markets in the Middle East and North Africa region with an accent on foreign exchange and rates.

We also aim to bring reflections on certain topics and subjects, close to recent events, which we think are worth stopping on .

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Budget, Inflation and Trump !

Can’t resist citing that story found in the political column of a regular FT writer . A man finds a magic lamp, summons the genie and is offered the usual three wishes. “ First, I want a world without lawyers “ says the man. “ Done” says the genie who then turns to leave. The man protests : “ What about my two other wishes ? “ The genie turns back and replies , “ Sue me ! “ In liberal democracies , the rule of Law is the last protection. In sovereign democracies, the Law is what the Prince says it is .

Egypt,

Budget : the government submitted the draft budget to the House of Representatives before April 1^st, the deadline set by the constitution. Next week, MPs will begin discussing it. The budget comes through the storm created by the US with still very much present the war in Gaza. PM Mustafa Madbouli said nevertheless the country was moving on the right path with growth on an upward target of 4.5 %.

Revenues are expected to rise by 19 % to 3.1 trillion EGP ( 61 bn $) and spendings by 18 % to 4.6 trillion EGP ( 91 bn $). Expected budget deficit of 29.6 bn $. The budget also aims to reduce public debt to 82.9 % of GDP and increase the primary surplus to 4 % of GDP.

To ease economic pressure on the most vulnerable families, 733 bn EGP have been earmarked for subsidies, grants and social benefits. As mentioned in some earlier posts, wages and pensions ‘ increases will take effect on July 1^st.

· Annual urban headline inflation rose in March for the 1^st time in 6 months to 13.6 % from 12.8 % in February ( January was 24 % ). On a m/m basis , the rise was 1.6 % in March from 1 % in February. Mostly on the back of a larger increase in food and beverage prices, +6.5 % from +3.7 %. Clothing and footwear ( +18.3 %, housing, water and utilities( +17.4 %), healthcare ( +25.5 %) and transportation ( +29.5 %) also contributed ( all smaller components).

· Core inflation fell to 9.4 % from 10 %.

· According to state media, Egypt increased fuel prices today by up to 15 %, making it the first increase of 2025. This comes a month after the IMFs’ approval of the 4^th review and acts on the promises to bring retail prices to cost to recover by the end of 2025 !

· Trade deficit, -3.42 bn $ in February, down 0.58 % m/m. One line stands out on the import side, natural gas, up 145 %.

· In line with the State Ownership Policy, there will be some reorganization in the way the Armed Forces National Service Projects Organization operates. Some restructuring and management changes in agreement with Egypt’s Sovereign Wealth Fund who will manage some of those outfits until they are divested. For more management efficiency.

· Italy’s energy company ENI will invest 24 bn $ in North Africa, of which 8 bn $ in Egypt.

· France-Egypt : during President Macron’s visit in Egypt, a 7 bn euro agreement was signed to develop green hydrogen projects : develop, finance, operate comprehensive facilities near Ras Shokair.

· Net FX reserves rose slightly in March to 47.76 bn $ from 47.393 bn. The increase is linked to higher gold reserves while FX was slightly lower. Numbers do not account for the 1.2 bn $ of the 4^th Review of the EFF. Nor any funds after the EU’s Parliament approval of the 4 bn euros assistance.

· Also earlier this week, the NFA, Net Foreign Assets of the banking system , rose by 17.2 % to 10.2 bn $ from 8.7 bn $, from a narrowing of the commercial banks’ net liabilities.

· The Net FX Reserves and the NFAs both released before this week’s events .

Market wise,

A bit of a roller coaster week as you can imagine .

· Spot wise, over 3.7 bn $ recorded locally, starting with 1.15 bn $ last Sunday. Days were equities tanked saw the largest outflows. Yesterday, with a global equity rally, volumes stood around 650 mio $ with some inflows recorded

· Prices jumped from 50.60 Thursday 3^rd to a high of 51.70 om Wednesday 8^th and close around 51.35 with yesterday’s inflows. A weakening of the Pound of around 2 %.

· NDF : yesterday, 1 year NDF was around 60.70/90 and jumped today to 61.15/65, higher and wider. Gives a mid implied rate of 24.5 %. Markets saw a lot of activity.

· Primary auctions, we have seen already that last Sunday’s 91 and 273 days had a very poor reception as the 2 year bond the next day.

· Surprisingly though, yesterday’s 182 and 364 days did very well considering the circumstances :

· The 6 month cover ratio was 2.2 and the 1 year 1.1 with slightly lower yields !

·Secondary market activity gives a different picture with foreigners selling 106 bn EGP ( 2.06 bn $ ) of bills and buying back 7 bn yesterday though ; Arab names sold for 15.4 bn EGP or about 300 mio $. Compare that number for the Foreigners to the 186 bn EGP they bought in March after the inflation number release.

One has to balance the continued weakness of the US dollar with the inherent global macroeconomic risks brought by the tariff war. In Egypt’s case, they were relatively spared with 10 % tariffs but the 90 day pause ( if it lasts 90 days ) brought no extra relief as 10 % is for now the support level.

Falling energy prices even more so when priced in $ will be beneficial. All else most likely not.

Next Thursday , the CBE is holding its MPC meeting : before the tariffs’ war Trump unleashed, it was widely expected that they would cut the rates anywhere between 2 to 400 bps.

Now the outlook doesn’t seem that sanguine anymore, especially after the higher than expected inflation rate. Real rates are very high, over 14 %. And we know that inflows/outflows are less dependent on the level of rates that the big noise around. So the CBE might buy itself a bit of respite and pause until the dust settles !

I would say though better to start now, cut rates by 200 bps to start the cycle. It is not viable for Egypt to spend 70 % of expenditures on interest rate payments !

Thank You !

DC