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00:00I mean it's been an incredible run for Egyptian sovereign bonds could could the speculation around a taper from the Fed unsettle that trade. I think morning is this and more months. You know I think there's always a risk out there. We remain pretty bullish on the bonds in general both on the currency side and the local side. On the Egypt continues to be a pretty resilient story a pretty strong macro performer within them. And there are some tailwinds coming up. You know those J.P. inclusion that that's going to be significant we think because local bonds near applicability and we've seen interest in these bonds continue throughout throughout even the recent concerns about you know tapering. Great to have you with us this morning. Look obviously we've talked about it a lot which is about the carry trade but the backdrop to that carry trade is predicated on a higher rate of interest. And you say that there is a strong case for rate cuts. Real rates are acting in your terms as a drag on the real economy. When will they cut rates and by how much. Will we see a very strong case for rate cuts in the near term as in June. The that is predicated on the fact that Egypt has the highest real rates within him. Real yields in Egypt are currently at around 9 percent on a forward looking basis which beats anything that you can get within the. So there is plenty of scope there for those rates to come down without actually sanctioning the relative attractiveness of rates in Egypt. So yes the carry trade is predicated on this attractiveness but it's so outside now. The reason is also though is because of external uncertainty and Egypt's external vulnerabilities it really needs those portfolio inflows to keep coming in. And so the Egyptians have been reluctant to cut rates on that basis. But we see that as being possibly a bit overly cautious and against the backdrop backdrop of an improving international environment with the vaccine rollout etc. know we see there being scope for cuts to come in in June probably about 50 basis points. Farouk what about the geopolitical risks around the dispute with Ethiopia. Is that sufficiently priced in would you say. In these current metrics. He's been a background risk for a few years now. It gets hot it gets cold. I think investors have not fully priced in the possibility of a conflict or anything like that. But that's not really in our best case and not something that investors are expecting. So you know I don't think this is really center stage in terms of investors thoughts regarding Egypt credit or the local trade. Fruit want to just pivot to Saudi Arabia I know that you've got a reasonably bullish outlook in the non oil economy that concurs with a number of other guests. We've had this. We put two Aramco. We understand they're going to come back to the bond market to fund the dividend. We expect about five billion dollars. A would you buy the bonds. B do you think there'll be a quenching appetite for them in Qatar and Oman already out there in the bond market as well. I will come in on the on the first thing would I buy the bond specifically but you know I think generally speaking you know there is we have to look at it and Saudi risks. More generally the higher oil prices obviously make you know Aramco as prospects basher and the Saudi sovereigns prospect better. But what they do also is reduce the likelihood of issuance from the Saudi government from the ministry of Finance. So in terms of Saudi risk supply risk out there that's come down a lot because the Saudi borrowing requirement has come down very significantly at the government level. And that provides plenty of space for Saudi was a sovereigns and corporates to come to market. So I don't think that there's a particular crowding out story. And that's true across the GCSE. There's going to be a lot less sovereign issuance across GCSE which I think will give space for these corporates to come through. We saw Noga come in in March and we expect to see others. When you look at the non oil economic data in Saudi Arabia is it your impression that much of the turmoil and the dislocation caused by Corbett has already been recouped and sort of where does that leave us for the remainder of the year and going into 2022 in terms of GDP growth. Yeah I think you know if we look at the flash data that came out for Q1 certainly the data shows us that real economic activity is at or above levels pre pre pandemic. So the implication is that you know we're back to where we were pre pandemic and going strong. You know the growth the growth has been very strong in the nominal sector stronger than it has been in fact in in many years. What does that mean going forward. Whistle a little bit cautious with respect to nominal growth in Saudi Arabia. We think that the key driver there is going to be government investment that government investment is shifting off balance sheet to the VIX and other other agencies. It's still unclear as to what the how effective that investment is going to be in driving nominal growth and particularly long term growth through diversification. For just a quick view on FDI into Saudi Arabia we'll continue trying to assess where we are with Vision 2030. One gets the sense that there's a real renewed impetus to draw FDI into Saudi Arabia. Any quick view on that. There certainly has been. From the Saudi government a huge amount of kind of renewed energy in that field. I mean clearly there was a decree that all or entities or oil companies doing business with the Saudi government would have to base themselves in Saudi. There is also the drive for private sector investment in the Shery Ahn program. That that could be positive in theory for foreign direct investments. They want to partner with locals. So there is that there is that drive. My view remains though that there are significant hurdles to attracting foreign direct investment in Saudi Arabia that are related more to the business environment the rule of law et cetera which I think require a longer term structural reforms. I think a top down command style approach to driving investment both the private sector domestic and foreign direct investment in in in the kingdom is unlikely to be the most successful way of doing it.

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Egyptian Inflation Slows, Gives Scope for Rate Cut

Farouk Soussa, VP, MENA Economics Research discusses Egypt's decelerating inflation and the impact of Covid on its tourism sector. He speaks with Manus Cranny and Yousef Gamal El-Din on "Bloomberg Daybreak: Middle East." (Source: Bloomberg)

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