Spillovers from the war in Ukraine and tighter external financing conditions have exacerbated strains in Egypt’s balance of payments and we think the pound needs to fall a lot further. This will add to inflation pressures, prompting further interest rate hikes, and worsen the fragile public debt dynamics, which means that fiscal policy will be kept tight (although default concerns appear to be overdone). All of this will weigh on economic growth, which we expect to come in below consensus over 2023-24. But the longer-term outlook is brighter.
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