Egypt's Real GDP Grows 2.4% By End of 3Q of FY23/24 Despite Global Challenges: CBESource: www.export-egypt.com 10/2/2024, Location: Africa |
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The Central Bank of Egypt’s (CBE) latest Financial Stability Report highlights real GDP growth of 2.4% during the first nine months of FY2023/2024 (July 2023 to March 2024). Despite significant global challenges, this growth reflects the resilience of Egypt’s financial system.
Released on Wednesday, the report underscores the vital role of Egypt’s financial system—comprising both banking and non-banking sectors—in supporting financial intermediation throughout 2023 and the first quarter of 2024. According to the report, this performance is attributed to the availability of financing across key sectors, the introduction of diverse financial products, and the reliance on stable household deposits as a primary funding source. The report indicated that while Egypt's economy grew by 2.4 percent from July 2023 to March 2024, this was a decline from the 4.1 percent growth recorded during the same period the previous year. The slowdown was primarily attributed to rising geopolitical tensions, high inflation, and elevated global interest rates. Robust Banking Sector As of the end of FY2023/2024, the report highlighted that banking sector assets represented 116.9 percent of nominal GDP accounting for 92.3 percent of total financial system assets. It added that the sector's financial position exhibited strong health indicators as of March 2024, exceeding all regulatory ratios set by the CBE and Basel Committee requirements, thus bolstering confidence among market participants. The report also emphasized that Egypt’s banking sector has played a crucial role in foreign currency financial intermediation and financing foreign trade operations, adhering to commitments under the economic reform program supported by the International Monetary Fund. Implementing a flexible exchange rate system and an improved economic outlook contributed to increased foreign investment inflows and a surplus in the balance of payments between January and March 2024. In March, the CBE applied the fourth wave of local currency devaluation against the US dollar, allowing the Egyptian pound to lose over 60 percent of its value against the greenback. Moreover, the bank raised key interest rates by six percent (600 bps), bringing the total rate hikes to eight percent (800 bps) since the start of 2024, and to 19 percent (1900 bps) since the onset of monetary policy tightening in March 2022. Sustained Financing Without Excessive Risk The report affirmed that the banking sector continues to provide necessary financing to businesses and households without taking excessive risks, thereby reducing the likelihood of systemic risks associated with borrower defaults. This stability is attributed to the Central Bank’s successful enhancement of the credit environment and ongoing coordination between fiscal and monetary policies to achieve economic and financial stability. Fiscal policy remains focused on financial discipline, while monetary policy continues to adopt a restrictive approach to mitigate inflationary pressures by raising interest rates. The required reserve ratio in local currency at the Central Bank remains at 18 percent. Additionally, macroprudential policies cap total loan instalments for consumer purposes at 50 percent of monthly income, with mortgage loan instalments capped at 40 percent. Systemic Risk Reduction The report reveals a decreased likelihood of systemic risks stemming from public finance disruptions within the banking sector, owing to government measures aimed at financial discipline, such as improving public spending efficiency, maximizing revenues, and reducing public debt. This is coupled with positive performance in public finances, evidenced by a decrease in the share of government securities as a percentage of total banking sector assets and an increase in foreign investor participation in the local treasury bills market. According to the report, the non-banking financial sector represents 9.8 percent of nominal GDP and 7.7 percent of total financial system assets. Fiscal year 2023 saw significant improvements in non-banking financial activities, while the Egyptian capital market demonstrated strong performance through the first quarter of 2024. Positive Indicators in Financial Stability The financial stability index has shown improvement, rising to 0.44 in March 2024 from 0.34 in March 2023. The rise embodies substantial enhancements in banking and financial market performance indicators and a relative improvement in macroeconomic indicators and the global economic climate. The results of various stress tests indicate the financial system's resilience —both banking and non-banking—and its capacity to withstand unexpected losses from potential systemic risks under adverse economic, financial, environmental, and geopolitical conditions. Commitment to Financial Inclusion The Central Bank of Egypt emphasizes its commitment to enhancing financial inclusion to expand access to financial services, contributing to sustainable financing and economic stability. Approximately 47.4 million citizens were included in financial services as of March 2024. Furthermore, the CBE focuses on building and developing financial infrastructure for digital payment systems and ensuring that these systems remain available and stable according to global standards. The report concludes by asserting that the Central Bank actively reinforces customer rights protection and enhances trust in the banking sector. This includes issuing regulatory instructions to improve financial and banking service delivery, ensuring customers receive their rights, and fostering confidence and stability. |
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