Boston, MA -- (SBWIRE) -- 06/25/2012 -- Core Views: Following 2011's political crisis, our forecasts see trend growth in Egypt settling at a lower rate over the coming five years as the political transition from authoritarian rule to competitive democracy raises political risks, slows reform momentum and weakens investment inflows. We forecast real GDP to expand by an average 5.2% between 2012 and 2016. The current transitional government is likely to sign an IMF Stand-By Arrangement before the end of the parliamentary election cycle. Such an agreement would not only provide a low-cost source of external financing, but also act as a key policy anchor. Although parliamentary elections tentatively scheduled for late 2011 are likely to be the most free and fair in Egypt's history, we expect the military to maintain considerable behind-the-scenes influence in policymaking. We do not expect the armed forces to relinquish a large share of their economic interests. The Muslim Brotherhood is likely to garner the largest share of votes in the upcoming election. Its ability to unilaterally pursue its own policies will, however, be tempered by the need to form a coalition government with parties of different ideologies. Major Forecast Changes We have revised down our forecast for the Egyptian pound in 2012, and now project the unit trading at an average EGP6.1000/US $ On the back of weaker-than-expected tourism receipts and a likely decline in remittance inflows, we expect the current account shortfall to fall further into the red over the coming months, and project the deficit coming in at 1.9% of GDP in FY 2011/12. Key Risks To Outlook Although the central bank retains a large stock of foreign reserves, a more prolonged period of capital outflows than currently envisaged would add considerable pressure to balance of payments stability. Maintaining confidence in the exchange rate will be the central goal of the central bank over the coming months. A resumption of large-scale protests on the same scale as witnessed in late January would do further harm to the country's all-important tourism sector and hold back the economy's growth potential.
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