Egypt, May 23rd 2025,

President Sisi on energy and FDI's. The Central Bank (CBE) cuts rates by 100 bps and aims to keep positive real rates !

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Grand Egyptian Museum .

A surprising 5 year local bond issuance . President Sisi on energy and FDI's. CBE cuts rates by 100 bps and aims to keep positive real rates.

First,

Leaks in the system ! We are all aware of the messy political landscape in Libya , between Tripoli and Benghazi and their backers .

The UN and various Security Council resolutions to prevent the looting of the country’s oil revenues established that only the NOC ( National Oil Corporation ) could export oil and the proceeds to be deposited with the Central Bank. The problem is that while Libya produces crude oil, it has little capacity to refine the stuff you put in engines and factories.

So the CB devised a swap scheme where companies could swap crude for refined products externally to alleviate shortfalls in foreign currencies and help against fuel shortages. Now as in many countries in the region, refined products in Libya are more than 90 % subsidized ! You can imagine the rest. Trading companies that didn’t exist a few years ago are licensed to do the swap and then managed to capture the refined products at the subsidized prices and re-export it.. at market price !

Since the scheme was brought in 2021, imports of clean refined products have more than doubled : consumption of oil per capita is double Saudi’s ! Fuel subsidies are more than 75 % of the total and cost 8.5 bn $ a year. Small footnote, most of the diesel imported is from Russia ! The companies participating in this bonanza are affiliated with each side, Tripoli and Benghazi, most likely registered in HK or the Gulf and closely linked to their respective warlords ! So not much of Libya’s mineral wealth benefits the average Libyan..Again..

Egypt,

Ahead of the summer, President Sisi is directing the government to ensure a stable electricity supply and avoid a repeat of the shortages experienced last year. He stressed the importance of meeting the needs for petroleum products and the state of oil and gas exploration and reserves. Accent also to intensify the settlement of overdue payments to international energy companies.

The government allegedly has a plan to sort out the backlog before the end of FY 24/25, so in a month of time ! Remember it was stressed many times that to incentivise foreign energy companies to explore and boost production in Egypt, they had to get paid what they are due first.

To reinforce the point above, two of the largest fertilizer producers said on Wednesday they have received official notification for a two-week reduction in natural gas supply to their plants, triggering an immediate halt in production. As last year ! Egypt’s natural gas output fell to 3.3 bn cubic metres in February 2025 from 4.6 bn in January 2024.

Gas shortages mean blackouts mean reduced industrial output and could mean reduced working hours and necessity to import again gas and LNG and so a drain to foreign exchange.

During a meeting on Tuesday with the Prime Minister Mr Mostafa Madbouly and the Central Bank governor Mr Hassan Abdallah , the President asked for the continuation of intensive efforts to attract more foreign investments and encourage the private sector.

Underlined :

· Macroeconomic indicators,

· Enhance the banking sector’s performance,

· Strengthening the country’s foreign currency reserves and availability of adequate foreign reserves plus a liquid foreign exchange market,

· Reforms and taxation,

· Inflation

Positive but taking its sweet time : EU, the Council and the European Parliament have reached a provisional agreement to grant 4 bn euros to Egypt, part of a macro-financial assistance to Egypt. Modality to follow !

Last, the CBE has started again to publish its Monetary Policy Report , this one for Q1 2025, so before the April MPC meeting. Gives lots of insight on inflation’s perspectives, monetary aggregates and macro elements. It was written in that report that the CBE “ aims to sustain the prevailing positive real interest rate, ensuring… a significant decline in underlying inflation…. and inflation expectations anchored at the announced target “.

Markets ,

· Monday’s local currency bond auction delivered a big surprise . Recently only the 2 and 3 year were issued with lately a very poor reception. This Monday, the 5 year was also in the starting block. The 2 year had less than 100 mn LE accepted and the 3 year 620 mn ( for 3 and 10 bn offered ) : the 5 year had 2 bn on offer, 25 bn submitted and 20 bn accepted at the yield of 19.98 % but the best is that those 20 bn went to just one bidder . I am venturing it could be a special request !

· Today’s 1 year and 6 month auction were a repeat of last week : good cover ratio for the 6 month, 63 bn accepted for 30 bn offered and a marginally higher rate. Interesting as the auction was just a few hours ahead of the MPC meeting.

· FX , there has been some relatively decent inflows recently and a spot dealing below 50 at 49.90 now.

· NDF, lower from last time we mentioned , 58.65 mid today from 59.45 mid but spot is lower so implied yields more or less the same.

And now , the CBE delivered at its MPC meeting a 100 bps rate cut bringing the overnight deposit rate, the overnight lending rate and the main operation rate at respectively 24, 25 and 24.5 %. The discount rate is also lowered to 24.50 %.

The CBE sees a sustained recovery in economic activity, a higher real GDP growth, an output gap still below potential despite continued increase in economic activity , and so indicating demand-side inflationary pressure to be subdued. The main driver for the downward inflationary path is declining food prices while the non-food results from adjustments in administered prices.

So continued decline in inflation but constrained by implemented and planned fiscal consolidation coupled with light unwinding of trade tensions, exchange rate “ dynamics”, normalisation of sovereign risk levels mean the continuation of a moderate easing rate cycle.

Future decision in function of the forecast trajectory and prevailing balance of risks !

Since the beginning of the year, the Egyptian pound has gained 1.8 % against the $ but that gain is recent, since early May, after losing 1.8 % in early April : so they can argue that there is some flexibility with a range of close to 4 % ! On the carry trade, if you had been using just 3mth bills, you would be sitting on 9.4 % return !

Time to complete those summer holidays’ bookings !

Thank you !

DC