Cairo - Mubasher: The Global Research report compiled by Bank of America Merrill Lynch stated that GCC and multilateral aid to Egypt helps but remains insufficient for a turnaround.
Merrill Lynch believes Egypt can avoid a sharp devaluation in 2016 if the bilateral and multilateral pledges recently announced materialize in a timely fashion, and thus expect Egyptian pound flat to end-FY16.
Merrill Lynch hopes that the country's foreign direct investment can pick up self-sustainably, as the authorities' plan remains the same in respect to import restrictions and external aid.
The research unit pointed out that the pledges obtained are not sufficient to boost Egypt's FX reserves into a safer zone, and thus it to continue to see pressure on Egypt's pound playing out.
On macro view, Merrill Lynch said it believes that the revolution and lengthened political transition have grounded the economy and weakened the external position, but activity has started to recover.
The delivery of the economic reform program is essential, as well as Egypt Economic Development Conference and GCC investment pledges, as they will all contribute in avoiding a sharp adjustment in the domestic currency, pointed out the report.
As for risks, Politics (transition, governance, and security) and a domestic run on Egypt's pound are the main risks that need to be watched closely.
Summing up, Merrill Lynch said it will remain Market weight external debt as low oil prices ease fiscal strains but valuations remain pricey.
