20 October 2016
CAIRO, Oct 20 (Reuters) - Egypt's economy is likely to grow 3.5 percent in the 2016/17 fiscal year, missing the government's target of around 5 percent and falling below last year's growth rate, a Reuters poll showed on Thursday.The poll, which surveyed 17 analysts, found growth would pick up only slightly to reach 3.7 percent the following fiscal year.

Egypt has been struggling to stimulate its economy amid a severe shortage of dollars since a 2011 uprising drove away tourists and foreign investors, key sources of foreign currency.

The economy also fell short of the government's target of 5.5 percent for the 2015/16 fiscal year, which ended in June. Egypt's finance minister has estimated growth for that period at around 4.2 percent.

"Real GDP growth was unexpectedly high in 2015/16 considering the sharp downturn in tourism and severe forex shortages," said Jacques Verreynne, an analyst at NKC African.

The acute dollar shortage has made it harder for businesses to purchase from abroad and crippled manufacturers that rely on imported raw materials.

Importers have had no choice but to turn to a black market to get dollars as banks ration meagre supplies for essential commodities. Businesses were paying 15 Egyptian pounds or more per dollar in recent weeks compared with an official rate of 8.8 .

The median forecast put inflation as measured by the annual rise in the consumer price index at 11.0 percent for the current fiscal year, down from a previous forecast of 11.5 percent.

Both forecasts are lower than the country's recent monthly core inflation readings. September's rate was 13.94 percent, up from 13.25 percent in August.

Analysts expect inflation to jump in 2017/18 to 13.8 percent before easing slightly to 12.5 percent the following year.

The central bank has been trying to balance the need for economic growth with keeping inflation risks at bay.

After raising its key rates earlier in the year, it kept them on hold at its last monetary policy meeting in late September, leaving its overnight deposit rate at 11.75 percent and overnight lending rate at 12.75 percent.

The six analysts who weighed in on interest rates disagreed sharply on where they would go in coming months, though the median forecast put them as stable.

"We see a 200-basis-point hike most probably at the Nov. 17 meeting, (after) receiving the first tranche of the IMF loan in order to attract portfolio investments in the short-run," analyst Eman Negm from Prime Holding said.

Egypt in August signed a preliminary agreement with the International Monetary Fund for a $12 billion lending programme aimed at plugging its budget deficit and balancing currency markets. The IMF executive board must still grant final approval.

IMF Managing Director Christine Lagarde said earlier this month Egypt needed to take "prior actions", including steps towards a more liberalized exchange rate and reduced fuel subsidies, before the board could approve the programme.

(Polling by Hari Kishan and Khushboo Mittal in Bengaluru, editing by Larry King)

© Reuters 2016