Morgan Stanley: Ras el-Hekma deal implies massive momentum in Egypt’s privatization program

Ras el-Hekman new deal، which is the biggest in Egypt's history in the prime minister's own words، implies massive momentum in the country's privatisation programme، which so far has secured about US$5.6 billion between April 2022 and December 2023 from selling stakes in 14 different state-owned companies، according to Morgan Stanley.

Significant boost to Egypt's external finances

The government's divestment target for 2024 was announced at US$6.5 billion involving separate IPO deals. The new deal would be a significant boost to Egypt's external finances، worth more than three years' net FDI inflows in only two months، and around 9% of GDP.

It also implies a direct US$11 billion improvement in the CBE's NFA، as its deposit liabilities to the UAE will be removed. Moreover، according to a MOF memo sent to investors، 35% of the project’s profits will go to the Egyptian government.

The new deal goes well beyond the divestment expectations of the original IMF programme: Shifting Egypt's external funding composition away from portfolio

inflows to more stable FDI funding has been a major pillar of Egypt's IMF programme signed in December، which projected a steady increase in net FDI inflows to above US$15 billion during the programme horizon.

Adjustment in FX

What's next? Mogan Stanley thinks that the deal paves the way for the long-awaited adjustment in FX، which the bank believes is the last key policy step to unlocking a bigger IMF loan، expected to be above US$10 billion (with additional multilateral funding).

The IMF's Julie Kozack reported excellent progress on the discussions of a "very" comprehensive policy package to reach an SLA، which was followed by PM Madbouly's comments that the UAE deal leaves Egypt “very very few steps” away from reaching a new deal with the IMF. After today's news، the bank thinks that the chances of an FX adjustment and announcement of an SLA seem very likely.