Cash-strapped Egypt must speed up the pace of its reforms or make more "painful adjustments" to pluck its economy out of a deepening crisis, according to global investment banking group Goldman Sachs.
The Arab world's most populous country is saddled with double-digit inflation and a growing currency crisis, putting immense strain on the economy.
"In our view, this leaves Egypt facing a stark choice: accelerate the implementation of a reform agenda or move towards further painful adjustment," the investment bank said in a report released this week.
Egypt has already devalued its currency three times over the past year, allowing the pound to shed about 50 per cent of its value against the US dollar.
The devaluations have made little headway in alleviating a stubborn foreign currency crunch or attracting sufficient interest in its once-lucrative debt market.
Caused in large part by the fallout from the Russia-Ukraine war, Egypt is also facing double-digit inflation, which reached 31.9 per cent in February, mainly on the back of a steep increase in food prices.
President Abdel Fattah El Sisi's government has doggedly defended its economic policies, blaming the crisis entirely on the Russia-Ukraine war.
It has tirelessly used a narrative in which the country's economic predicament is cast as inflicted on it by a global crisis in which it played no part.
But critics maintain that the crisis, at least in part, is the outcome of lavish spending on mega national projects that were either unnecessary or could have waited. They also cite excessive borrowing and lack of transparency.
"Yes, the world is going through a very big economic crisis and it has a huge impact on us. But ... we are steadfast and will pass it," Mr El Sisi said last week while visiting troops in the Sinai Peninsula.
Striking an upbeat note, he added: "There is no such thing as a problem that cannot be solved. This problem will be history just like terrorism," alluding to his declaration, also last week, that the insurgency in Sinai by Islamic militants has been defeated.
Under a deal reached with the International Monetary Fund late last year, Egypt received a $3 billion loan to overhaul its economy.
The deal was linked to Egypt adopting a genuinely flexible foreign exchange regime, reducing the government's footprint in the economy and opening up its state assets to investors.
Egypt must accelerate implementation of the reforms agreed with the IMF, Goldman Sachs stressed in its report.
Six months after the deal with the IMF, the foreign exchange regime appears to be partially controlled, with the US dollar trading at about 30 pounds at banks for the past several weeks, it said.
In the parallel market, it is trading at 36-37 pounds, evidence of a continuing gap between the country's dollar requirements and what is available in the banking system.
The disparity in the dollar's value has renewed speculation that the pound may be devalued again, although the government would be wary of such a move given its effect on prices and fears of unrest.
Egypt's options to overcome its dollar shortage are limited, the report said.
Egypt's traditional economic backers in the Gulf region — Saudi Arabia, the UAE and Kuwait — have signalled their preference for investing directly in the local economy rather than depositing billions of dollars with Egypt's central bank as they had done for years.
The IMF, meanwhile, is unlikely to offer Egypt any more substantial loans "without significantly increased efforts on the reform front", Goldman Sachs said.
Egypt already owes the Washington-based lender about $20 billion, making it the world's second-largest IMF borrower after Argentina.
Uncertainty over the pound's value against the dollar is preventing Egypt's debt market from regaining its past attraction.
At least $20 billion worth of investment in the country's debt market swiftly left the country in the days and weeks that followed Russia's invasion of Ukraine in February 2022.
Investors were holding back on bond purchases on the expectation that treasury bond yields will soon begin rising to match the increase in overnight rates decreed by the central bank last week, Reuters reported on Tuesday.
While pressing ahead with the IMF-prescribed reforms could boost the inflow of direct foreign investment, their implementation involves risks, according to Goldman Sachs.
Egypt last month said it was offering investors stakes in 32 state enterprises, including banks and military-owned companies. It is hoped that the offer will attract interest from sovereign investment funds in the Gulf region. However, the pace at which the process is going has been slow.
Goldman Sachs said "stalling" in the sale of Egypt's United Bank to Saudi Arabia's Public Investment Fund and the postponement of plans to sell 10 per cent of Telecom Egypt have "undermined investor confidence".