With the victory of the Muslim Brotherhood candidate in Egypt's presidential runoff, the world's largest Arab nation appears set not just for a transition to democracy but also for economic growth, Egyptian officials said Monday.
Political uncertainty surrounding the nation's first democratic elections had delayed the International Monetary Fund's (IMF) decision to approve a loan of $3.2 billion to the Central Bank of Egypt. In the hours following Sunday's announcement of Mohamed Morsi Isa al-Ayyat as the country's first civilian Islamist president, the IMF promised to extend its support to the new Egyptian government's economic policies and reforms.
Morsi gained 51.7 percent in the runoff votes, ousting his secular, military-backed opponent, Ahmed Shafik, the last premier of former president Hosni Mubarak, who was heckled out of office in February 2011.
Besides the IMF's support, international investors are warming up to Egypt. Though a power struggle between Morsi and the ruling generals looms on the horizon, Egyptian markets have rallied since Sunday's election announcement. The benchmark EGX 30 stock index jumped 7.59 percent in Cairo in early Monday trading, achieving its largest single-day rise in nine years. The U.S. Market Vectors ETF, an Egypt-focused exchange-traded fund, closed 1.17 percent higher in Cairo on Monday after losing over 20 percent in the three months leading up to the election.
Emad Mostaque, a strategist at Religare Capital Markets, urged investors to buy Egypt in a note on Monday, indicating his confidence in Egypt despite the barriers it still needed to overcome.
Despite a rise in the government's borrowing costs in the days leading up to the elections and a slack demand for Egyptian bonds at an auction last Thursday, yields on Egyptian dollar bonds due to mature in 2020, fell 51 basis points to 7.36 percent -- its steepest drop since February last year. Since yields move in the opposite direction of price, the decline signals a higher demand for the country's bonds.
The presidential elections are a step in the right direction, and we remain upbeat on Egypt's long-term prospects once political conditions improve, analysts at Capital Economics said in a note Monday. Our target for the next 20 years is for GDP growth to average 6 - 7 percent year-on-year, compared to around 4.5 percent over the past two decades.