Balancing Egypt’s Dynamic Economic Landscape with its Persistent Macroeconomic Challenges

Economic Overview

The Egyptian economy demonstrated robust growth in FY2021/22, recovering from the COVID-19 pandemic. However, recent data suggests a slowdown in economic growth in Q3 FY2023/24, reaching a low of 2.2%. Nevertheless, the outlook for FY2024/25 remains positive, with projected growth of 4.2% driven by increased investment, a recovery in the manufacturing sector, and the anticipated end of the Gaza conflict.

The government plans to cut spending in response to the economic crisis. This includes delaying state projects that require significant foreign currency funding and reducing expenses related to travel, training, and conferences for officials. The government focuses on large-scale privatisation and asset sales as part of its economic stabilisation measures. These measures aim to address balance-of-payment stresses and stabilize the economy.

The Egyptian government sealed its largest investment deal with a consortium led by Abu Dhabi Developmental Holding Company (ADQ), one of the UAE’s sovereign wealth funds, for the development of Ras El Hikma city, spread over more than 170 million square meters of land on the Mediterranean coast. The deal is expected to be risk-positive, bolstering the country’s FX reserves and ensured adequate buffers for Egyptian authorities to devalue the pound, or at least move to a more flexible exchange rate regime, thus likely satisfying International Monetary Fund (IMF) requirements for a new and enlarged financing package. However, the deal is unlikely to ensure a sustainable turnaround for Egypt’s economy and needs to be complemented by long-awaited structural reforms.

ADQ will invest USD35 bn in Egypt that will retain 35% of the project’s profits. The project’s investment value could reach USD150 bn and may generate millions of employment opportunities, according to Egypt’s prime minister. ADQ will develop Ras El Hikma city that will include a business district, residential and commercial space, hotels and tourism resorts, healthcare and education facilities, and a free economic zone for IT industries and logistics hubs, among others.

Out of the USD35 bn being paid to Egypt, USD24 bn consists of new fund transfers (representing the consortium’s acquisition of development rights) and USD11 bn consists of existing UAE deposits at Egypt’s central bank that will be transferred to local currency and invested in prime projects. The Egyptian authorities also announced they are setting the ground for similar investment deals, notably the Ras Gamila land south of Sinai on the Red Sea coast, potentially to Saudi or Qatari investors.

The World Bank Group has approved a new Country Partnership Framework (CPF) for Egypt, which aligns with the Government of Egypt’s Sustainable Development Strategy and the National Climate Change Strategy. The new CPF intends to strengthen Egypt’s role in regional integration, which has positive implications for Egypt and potentially the broader region through enhanced regional trade and greater connectivity in infrastructure, transport, energy, and labour.

Egypt and the International Monetary Fund (IMF) announced on March 6, 2024, a staff-level agreement on a set of economic policies and reforms needed to complete the first and second reviews under the Extended Fund Facility, the amount of which is being raised to USD8 bn subject to IMF board approval. Noting that the IMF report in August 2024 indicated that program performance for the third review was satisfactory.

The Memorandum of Economic and Financial Policies for Egypt included in the IMF report in August 2024, included that the government will establish a repayment strategy to reduce arrears to international oil companies. The Egyptian General Petroleum Company (EGPC) has accumulated payment arrears on supply contracts of about USD, denominated in U.S. dollars. The buildup of arrears reflects several factors including foreign exchange shortages, elevated cost of borrowing, a cyclical downturn in the domestic production of gas, higher domestic consumption reducing the scope for gas exports, significant price deviations from cost recovery, and increased subsidies from EGPC to the electricity sector. The government is developing a repayment strategy to ensure that no new arrears are accumulated and that existing arrears are cleared, noting that an anticipated payment before the end of 2024 would lower the arrears to around USD3.5–3.8 bn.

Moreover, the authorities plan a series of actions to improve EGPC’s financial situation over time. The authorities raised electricity prices by 7–20 percent in January 2024 and retail fuel prices in March by 8–20 percent. While its financial position gradually improves, EGPC has the capacity to fully service its obligations on time due to an anticipated increase of EGP10-11bn of monthly revenues from recent and upcoming energy price hikes.

It was noted in the IMF August 2024 report that the program has a target to have a Ceiling on Government Guarantees. The Ministry of Finance will report to the IMF the stock of guarantees and such data will show guarantees on domestic currency and foreign currency borrowing by Economic Authorities (EGPC, GASC, Transport, NUCA, other) and state-owned enterprises (NIB, Electricity, other). It is worth noting that Guarantees issued on behalf of EGPC account for about half of government guarantees.

The increase of the IMF aid package to USD8 bn from USD3 bn is risk-positive for the economy and is likely to help draw in further foreign investments. Egypt is likely to get USD55 bn-USD60 bn in the next few years from the Ras El Hikma deal, the IMF, the EU, the World Bank and others. In June, Egypt and the EU signed 35 agreements and memorandums of understanding worth EUR67.7 bn (around USD72.4 bn at the time of signing) aimed at intensifying private sector investments in Egypt.

It is worth noting that on November 1, 2024, Fitch Ratings has upgraded Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B-’, citing improved external finances supported by significant foreign investments and enhanced policy measures. Key developments include the Ras El-Hekma investment, which contributed USD24 bn, and a substantial increase in non-resident holdings of domestic debt.

Also, S&P Global Ratings has affirmed Egypt’s credit ratings at B-/B, maintaining a positive outlook on October 21, 2024, instead of stable outlook, highlighting the country’s progress in implementing reforms since the liberalization of its exchange rate regime in March.

The Inflation Challenge

Inflationary pressures persist, with an average forecast of 27% YoY in H2 2024. The Central Bank of Egypt (CBE) is expected to maintain a tight monetary policy stance to curb inflation. A significant decline in inflation is anticipated in early 2025 due to base effects, which may prompt the CBE to ease monetary policy.

The Central Bank of Egypt (CBE) policy rate reached 27.75% since March 2024, and 1,900 basis points since March 2022. And it has been stable ever since. The CBE’s policy rate hike brings monetary policy nearer to neutral after an extended period of negative real interest rates. The tightening of fiscal policy and the slowdown in infrastructure spending agreed with the IMF should over time reduce inflation and support debt sustainability while fostering an environment that enables private sector activity and restore investor confidence.

To alleviate the pressures on purchasing power, the Egyptian authorities also decided to increase minimum wages and spending on social safety programs. Government spending on interest payments, social benefits and salaries remains high and will likely offset to some extent intended investment and other spending restraints and the impact of revenue-boosting developments. Higher debt servicing costs are likely to lead the fiscal gap to peak at 7% of GDP in fiscal year 2024–25.

A Widening Current Account Deficit

Egypt’s current account deficit widened in the fiscal year FY2023/2024, which ended on 30 June, to record USD20.8 bn, against USD4.7 bn in the same period of the previous fiscal year, primarily due to the increase in trade deficit by 27.0% and the decline in Suez Canal transit receipts by 24.3%, according to the latest figures published by the Central Bank of Egypt (CBE). This performance was led by the shift of the oil-trade balance into a deficit of USD7.6 bn from a surplus of USD410 mn, as the decline in oil exports surpassed that of oil imports, according to the CBE.

Egypt’s current account balance is sensitive to import prices and the country’s ability to enhance gas exports to Europe given the current high domestic gas demand. Also, a pick-up in FDIs likely rests upon the disbursement of IMF loan tranches that would send positive signals to the investor community and entice further GCC inflows. The current account deficit is projected to narrow to 4.2% of GDP in FY2024/25, supported by increased remittances and a wider services surplus.

Egypt will be challenged with a large budget deficit in the medium term owing to high commodity prices, rising interest rates and the impact of the pound devaluation on Egypt’s import bill. Egyptian authorities expected the budget deficit for 2024/25 to record 7.3%. Noting that 2023/24 budget deficit recorded 3.6% of GDP compared to 6.1% of GDP in 2022/23, due to one-off revenue from the Ras El Hekma deal.

Fitch expects that over the medium term, the deficit to gradually narrow but to remain around 4.5% of GDP due to sticky spending profile. The forecast assumes that the elimination of fuel and electricity subsidies will take longer than the government’s plan. The authorities plan to eliminate the fuel subsidy by 2025 and the electricity subsidy by 2026 and shift to a targeted subsidy system by FY2025/26.

Foreign Exchange Liquidity

Egypt’s foreign exchange liquidity position has deteriorated in recent years, but it improved gradually during 2024. Foreign exchange reserves have strengthened and are expected to continue growing, supported by capital inflows and potential debt issuance. According to the CBE, as of the end of September 2024, Egypt’s foreign exchange reserves stood at around USD46.74 bn. This is compared to USD35.22 bn at the end of December 2023 (USD34.0 bn at the end of Dec. 2022). Reserves are expected to cover around half a year’s worth of imports in the next 12 months, above the global adequacy metrics.

On 6 March, the Central Bank of Egypt (CBE) floated the official exchange rate which converged to the parallel rate at about EGP 51 per USD from EGP30.9 per USD. While this has helped the country to progress in terms of partially clearing trade backlogs, the market has not yet been fully liberated. The CBE also announced it would allow new currency derivatives to unlock liquidity in the local market, making available instruments to hedge against risks to the pound. According to IHS September 2024 report, a clear commitment of Egyptian authorities to announced reforms and further foreign currency inflows are needed to help improve Egypt’s situation. The source of this liquidity injection could also come from accelerating asset sales deals with the Gulf Cooperation Council countries or looking for new ways to attract more foreign exchange to the market.

Egyptian authorities must show their determination to commit to a durable flexible exchange rate regime, in line with the USD8 bn IMF loan agreement announced in early March 2024, and ensure a sustainable improvement of confidence in the foreign exchange regime and the currency. Although costly in the near term (high interest rates), this trajectory would maximize the likelihood of capital inflows, ease foreign exchange liquidity shortages and help to contain a future increase in inflation from currency weakening.

Debt Sustainability

The IMF estimates that the government debt to GDP ratio remains high at around 96.4% for the year 2024, and external debt to GDP be around 46.6% by the end of June 2024.

Egypt’s overall debt declined by the end of FY2023/2024, which ended on 30 June 2024, to 89% of GDP, down from 95.7% posted at the end of the FY2022/2023, according to July’s fiscal monthly report published by the Ministry of Finance. According to the report, the local debt eased to 66.7% of the GDP at the end of FY2023/2024, compared to 70.5% at the end of FY2022/2023. Moreover, the external debt declined to 22.3% at the end of FY2023/2024, down from 25.2% at the end of FY2022/2023.

Moody’s expects domestic borrowing costs will consume almost 65% of revenue at the end of fiscal 2024, a ratio that may temporarily deteriorate further considering the observed official currency devaluation. The agreed allocation of a large share of divestiture proceeds directly to the treasury to support debt sustainability will partly mitigate the highly adverse metrics.

Egypt aims to reduce the debt-to-GDP ratio to less than 85% by the end of the next fiscal year; as stated by the Minister of Finance in August 2024. And he added that the external debt balance of the budget agencies decreased by more than USD3.5 bn by the end of June 2024, by a reduction rate of more than 4% compared to June 2023. Noting that 7 years is the average life of the external debt of the budget agencies by the end of June 2024. Egypt pledged to decrease the high debt level to below 80 percent in 2027, in line with its commitments under the International Monetary Fund’s (IMF) programme.

The CBE’s report highlighted a decrease in Egypt’s overall external debt, which fell to USD160.6 bn by March 2024 from USD164.5 bn in September 2023. The CBE announced that Egypt made payments totalling USD23.8 bn towards its external debt between July 2023 and March 2024. External debt payments amount to USD34.9 bn in 2024, USD19.4 bn in 2025, USD25.2 bn in 2026, USD12.7 bn in 2027, and USD8.1 bn in 2028, as per the latest central bank disclosures. The government remains committed to fiscal consolidation and debt reduction through measures such as tax reforms, subsidy rationalization, and expenditure control.

Egypt and the IsDB Group

Egypt joined the IsDB on 12 August 1974 as one of its founding members. Since then, the Bank’s involvement in Egypt has focused on fostering sustainable, inclusive economic growth and poverty reduction through financing projects in infrastructure and supporting Youth employment and job creation.

The first IsDB operation in Egypt was in September 1977. Egypt’s capital subscription to IsDB is ID3,971.37 mn, at 6.77%. Egypt is also a member of all IsDB Group Entities (ITFC, ICD, ICIEC, and IsDBi). Egypt is among the largest beneficiaries of the IsDB Group’s development financing. All IsDB Group entities have been active in Egypt. Since its inception, the IsDB Group has approved a total funding of about USD23.04 bn for Egypt. This includes about USD2.5 bn project financing by IsDB; USD315 mn supported by ICD; USD18.4 bn trade operations by ITFC, and USD1.8 bn by other IsDB Group funds and operations.

IsDB Group Cumulative Net Financing Approvals for Egypt Since Inception

Source: IsDB December 2024

Egypt’s Special Relationship with ICIEC?

The Integral Role of Reinsurance in ICIEC’s Operational Model

“A trajectory based on network expansion and capacity enhancement”.

ICIEC has demonstrated its commitment to bolstering its operational capacity and strategic leverage through a third round of capital increase. This capital augmentation is not merely a financial milestone; it represents a significant enhancement of ICIEC’s ability to underwrite more extensive and complex business transactions. Moreover, the increase amplifies the Corporation’s reinsurance capacity, a cornerstone of its operational model.

Reinsurance plays an integral role in ICIEC’s strategy, acting as both a risk management tool and a mechanism for capacity expansion. At its core, reinsurance allows ICIEC to manage its risk exposure effectively by sharing it with other financial entities. By leveraging its capital, ICIEC can optimize its capacity to engage with the global reinsurance market, ensuring that its coverage meets the growing and diverse needs of its clients. This leverage not only mitigates risk but also ensures that ICIEC remains a reliable partner for its stakeholders, even in volatile market conditions.

The Role of Retakaful in ICIEC’s Strategy

Retakaful, the Islamic equivalent of conventional reinsurance, is a critical component of ICIEC’s risk management framework. Unlike traditional reinsurance, Retakaful operates in compliance with Shariah principles, ensuring that all transactions align with Islamic ethical standards. In this system, Takaful operators—who provide insurance based on cooperation and shared risk – seek protection from Retakaful providers to safeguard themselves against the risks they underwrite.

However, the Retakaful market faces several challenges, including limited reliable data, constrained capacity, and a small pool of Retakaful providers and underwriters. These challenges are particularly pronounced in the lines of business that ICIEC specializes in, such as credit and investment insurance. Despite these obstacles, ICIEC’s strategic approach to Retakaful has proven to be both innovative and resilient.

One of the key aspects of ICIEC’s Retakaful strategy is its ability to forge strong partnerships with reputable and financially robust Retakaful providers. The Corporation has signed several Outward Quota Sharing Treaties and Outward Facultative Contracts of Reinsurance Agreements with these partners. These agreements are instrumental in protecting ICIEC’s capital against significant insurance losses, ensuring the sustainability and reliability of its operations.

ICIEC as a Reinsurer

In addition to leveraging reinsurance to manage its risks, ICIEC also acts as a reinsurer for various insurance providers, Export Credit Agencies (ECAs), and Exim Banks within its Member Countries. This dual role underscores ICIEC’s versatility and its commitment to supporting the broader insurance ecosystem in its Member Countries.

ICIEC provides capacity and technical expertise to these entities through Inward Quota Share Treaties and Inward Facultative Reinsurance Agreements (IFRPs). These agreements cover a range of products, including:

• Export and Domestic Trade Credit Insurance.
• Foreign Investment Insurance.
• Excess of Loss Reinsurance, which protects portfolios and limits losses.

Recent collaborations in this domain include agreements with key institutions such as Indonesia EXIM, Malaysia EXIM, Saudi EXIM, and Uzbekinvest. These partnerships not only enhance the operational capacity of the participating entities but also promote the development of robust insurance frameworks within ICIEC’s Member Countries.

The Strategic Importance of Reinsurance

Reinsurance is a vital function within ICIEC’s organizational framework, serving several critical purposes:

1. Risk Mitigation: Reinsurance allows ICIEC to share the risks associated with large and complex transactions, reducing the potential impact on its capital reserves.
2. Capacity Building: By transferring a portion of its risk to reinsurers, ICIEC can underwrite larger and more diverse portfolios, meeting the growing demands of its clients.
3. Market Development: ICIEC’s engagement with reinsurers fosters the development of the insurance and reinsurance markets in its Member Countries, promoting economic stability and growth.
4. Operational Efficiency: The support received from reinsurance partners enhances ICIEC’s operational efficiency, particularly in areas such as Short-Term and Medium-Term Insurance and Foreign Investment Insurance.

ICIEC’s Reinsurance Partnerships

ICIEC has established robust relationships with leading reinsurance providers across the globe. Its primary reinsurance partners are based in traditional markets such as London, Germany, France, Switzerland, and Bermuda. These partnerships are pivotal in providing the capacity and expertise required to support ICIEC’s operations. Recognizing the importance of diversification, ICIEC is actively exploring opportunities to collaborate with reinsurers in non-traditional markets. Potential new partners include entities in the United States, Singapore, Australia, and other countries within the Asia-Pacific (APAC) region. This strategic expansion not only broadens ICIEC’s reinsurance network but also enhances its ability to respond to emerging market trends and challenges.

Enhancing Reinsurance Efficiency

The reinsurance support that ICIEC receives has proven to be particularly beneficial in areas such as Short-Term, Medium-Term, and Foreign Investment Insurance. This support provides the necessary capacity to manage high-value transactions and enhances the efficiency of ICIEC’s operations. Moreover, ICIEC’s strong relationships with its Member Countries serve as an additional layer of assurance for its reinsurance partners. The Corporation’s reputation as a trusted and reliable entity within the Islamic financial ecosystem further strengthens its position in the global reinsurance market.

Future Outlook

Looking ahead, ICIEC is committed to further strengthening its reinsurance strategy. The Corporation will continue exploring additional arrangements and relationships with both existing and new reinsurance partners.

This proactive approach ensures that ICIEC remains at the forefront of the credit and investment insurance industry, capable of meeting the evolving needs of its clients.

ICIEC’s ongoing efforts to expand its reinsurance network and enhance its operational capacity underscore its role as a key player in the global insurance and reinsurance markets. By leveraging its unique position within the Islamic financial ecosystem, ICIEC continues to provide innovative and sustainable solutions that drive economic growth and stability in its Member Countries.

Conclusion

Reinsurance is more than just a financial instrument for ICIEC; it is a strategic enabler that underpins the Corporation’s ability to fulfill its mandate. Through its comprehensive reinsurance strategy, ICIEC not only safeguards its operations but also contributes to the development of robust insurance frameworks in its Member Countries. The Corporation’s commitment to innovation, collaboration, and diversification ensures that it remains a cornerstone of the Islamic financial ecosystem, delivering value to its clients and partners alike.

The consensus is that renewables are the new powerhouse for trade finance and investment. Fuelled by a global focus on environmental sustainability and supportive policy frameworks, the value of supported renewable energy transactions doubled in 2024 compared to the previous years – after consecutive periods of growth. This surge reflects not only the industry’s commitment to green initiatives but also the recognition of renewable energy as a stable, long-term investment, perfectly aligning with the growing demand for trade finance. This is especially in emerging and developing markets. As members continue to support renewable energy projects offering financial incentives, risk portfolios are shifting as exposures increase to this key industry.

Key Takeaways for 2024
The BU Export Credit Business Confidence Trends Index for H2 of 2024, which tracks perceived demand and claims in the export credit insurance industry based on half-year surveys of BU members, noted several key takeaways:

• Cautious optimism for H2 of 2024 as the demand for ST and MLT insurance cover is expected to rise.
• Opportunities for growth lie in supporting SMEs and investment in renewables and the green transition.
• Claims under short-term policies are expected will rise in H2 of 2024 while claims for longer term business are expected to fall.
• For ST cover, Russia-Ukraine, the Middle East, and Argentina are the regions they are most watchful of; construction and consumer goods are the sectors being closely monitored due their higher sensitivity to macroeconomic conditions

Trade Credit Insurance – Insured Exposure ICISA Members Amount in (excl reinsurance members)

 

• Debt sustainability developments have meant lower sovereign-related claims under longer-tenor cover, but members remain vigilant towards countries in delicate fiscal positions, predominately in Sub-Saharan Africa and South Asia.
• Overwhelming consensus that macroeconomic and geopolitical uncertainty will shape demand and claims over the next six months. As such navigating geopolitical risks and the impact of conflicts are seen by many as the biggest challenges in H2 of 2024, albeit concerns over global macroeconomic uncertainty still linger.

Given the current landscape of credit insurance is marked by significant uncertainty and heightened risks due to a multitude of overlapping crises, Richard Wulff, Executive Director of the International Credit Insurance and Surety Association (ICISA), the first and leading trade association representing trade credit insurance and surety companies internationally, whose members account for the majority of the world’s private credit insurance business, stresses that “there is substantial room for enhanced collaboration between government insurers, including stateowned entities and ECAs and Development Financial Institutions (DFIs), and private sector re/insurers. Such collaboration can lead to the development of more comprehensive risk mitigation strategies by leveraging the strengths of both sectors.”

The recent MoU signed between ICISA and the AMAN UNION of credit insurers and ECAs from the OIC countries, of which ICIEC is currently the Secretariat, is precisely aimed at advancing credit and investment insurance initiatives in member states common to both, and expanding credit insurance, extending its benefits beyond traditional high-income markets to developing countries where the sector is often fragmented and undervalued and marginalized because of the absence “hard collateral” as security.

ICISA’s data for 2020 on the role of credit insurance in global trade estimates EUR12.07 bn in total global credit insurance premium, and EUR6.35 trillion of total value of insured shipments. The percentage of World Trade in 2020 protected by credit insurance was 14.52%; the percentage of the global credit insurance market represented by private insurers was 61%, and the percentage of the private market represented by ICISA was 84%.

As the only Shariah-compliant multilateral insurer in the world and member of the Islamic Development Bank (IsDB) Group, and offering a suite of alternative risk mitigation solutions, guarantees and reinsurance akin to mutual insurance (Takaful) and (ReTakaful), ICIEC is similarly subject to the bevy of emerging risks that have evolved in the last two years in addition to the usual risks associated with trade and investment insurance, and guarantees and surety. It is also beholden to the prevailing macroeconomic conditions of the 50 member countries that it serves under its mandate. Its success has been impressive over the last three decades and in its Pearl Jubilee year in 2024 it surpassed the USD121 bn mark of cumulative business insured, investment protection and guarantees in pursuit of its mandate in providing risk mitigation solutions related to trade and investment in member countries, facilitating intra-OIC trade and investment, and promoting the alternative Islamic system of financial intermediation, in its case in the provision of Takaful.

Collaboration is in the DNA of ICIEC considering its longstanding partnerships with many peer institutions, industry professional bodies namely the Berne Union, AMAN UNION and ICISA; government export promotion agencies; with private credit insurers and a range of banks and with ECAs of member countries and beyond. The Corporation has a pivotal founding association with the AMAN UNION, which was established in 2009 and of which I am currently the Secretary General.

The 14th AMAN UNION AGM in December 2024 in Algiers showcased the critical role of fostering credit insurance and trade across Africa, the Arab, and Islamic countries. By uniting diverse stakeholders, we illustrated the power of collaboration in addressing trade challenges and driving sustainable growth. Strengthened partnerships and shared expertise are paving the way for a resilient, interconnected trade ecosystem in OIC countries to boost risk mitigation and protection in trade and investment in today’s interconnected world with its rising geopolitical and economic risks. In today’s complex global landscape, the AMAN UNION remains a vital platform for collaboration and innovation, delivering valuable insights to benefit all stakeholders.

The AMAN UNION seeks to be the comprehensive umbrella for export insurance agencies in Arab and Islamic countries, while expanding its membership to include elite international institutions, and aims to promote the exchange of experiences, the application of best practices, and the dissemination and development of a culture of assurance. In fact, in Algiers the AMAN UNION signed a Corporate Training Services Agreement with the UAE-based RISC Institute DMCC, a leading training institution specializing in talent development for the insurance, risk management, and personal finance sectors.

ICIEC unveiled its 2023 Annual Report in May 2024 in Riyadh at the IsDB Group Annual Meetings. The year 2023 was one of operational resilience and exceptional financial performance, showcasing a significant 14.4% y-o-y increase in insured trade and investment transactions, amounting to USD13.3 bn. The Corporation also reported an increase in its Gross Written Premium, which rose by 6.4% to USD98.3 mn. ICIEC’s improvement in corporate net results reflects its ability to effectively manage policyholder commitments, enhance value proposition and demonstrate fostering confidence of our Member States. This performance trajectory is set to continue in 2024, despite the various headwinds and evolving risks.

It would be a miss not to correlate the dynamics and impact of global macroeconomic indicators especially real GDP growth, trade movements and Foreign Direct Investment (FDI) trends for 2024, all of which impact the dynamics of credit and investment insurance business and market calculations. The IMF’s World Economic Outlook Real GDP Growth Projections in October 2024 reveals a subdued global growth scenario of 3.2% for 2024 and 2025. This trajectory is repeated at 1.8% for the Advanced Economies of which Canada’s economy is projected to grow at the highest percentage of 2.4%.

In contrast the Emerging and Developing Economies are projected to grow 4.2% for the same years, with India way ahead at a projected GDP growth of 7% in 2024 and 6.5% in 2025, and China weighed down by its current economic woes with projected GDP growth at 4.8% declining to 4.5% for the same period. GDP growth outlook for low-income developing countries which constitute a majority of ICIEC membership is projected at a health 4.2 per cent for the two years. Of the OIC countries, Saudi Arabia’s growth is projected to increase from 1.5% in 2024 to 4.6% in 2025 in line with the ambitions of the Saudi Vision 2030, while Nigeria’s growth prospects are projected to increase from 2.9% in 2024 to 3.2% in 2025.

The scenario for global trade prospects in 2024 and beyond reflects a similar trajectory. The WTO’s Goods Trade Barometer published on 10 October 2024 shows moderate trade growth as uncertainty looms, including possible shifts in trade policy.

World merchandise trade volume

Source: WTO Goods Trade Barometer October 2024

Drivers of goods trade

Source: WTO Goods Trade Barometer October 2024

Trade volume growth for the whole of 2024 should come in at around 2.7% while growth in 2025 is expected to reach 3.0%. Exports of Asian economies and imports of North American countries grew more than expected in the first half of 2024 while European trade flows continued to decline on both the export and import sides.

The WTO’s Global Trade Outlook and Statistics Update in October 2024 projects a gradual trade recovery in 2024 despite widening regional conflicts and increased policy uncertainty. “Global merchandise trade turned upwards in FH 2024 with a 2.3% year-on-year increase, which should be followed by further moderate expansion in the rest of the year and in 2025. The rebound comes on the heels of a slump in 2023 driven by high inflation and rising interest rates. WTO economists now anticipate that the volume of world merchandise trade will increase by 2.7% in 2024 and 3.0% in 2025, while global GDP growth at market exchange rates is expected to remain at 2.7% in both years,” stressed the update.

Declining inflationary pressure, says the WTO, has allowed central banks in advanced economies to begin cutting interest rates, which should stimulate consumption, boost investment and support a gradual recovery of global trade. However, significant downside risks remain, including regional conflicts, geopolitical tensions and policy uncertainty. The revised trade forecast is consistent with the WTO’s Global Trade Outlook and Statistics report issued in April, which predicted 2.6% growth in both merchandise trade and GDP in 2024, followed by trade growth of 3.3% and GDP growth of 2.7% in 2025.

World merchandise trade volume and GDP growth, 2021-2025
Annual % change

Source: WTO for merchandise trade volume and consensus estimates for GDP.
Note: Figures for 2024 and 2025 are projections. Trade refers to average of exports and imports.

Merchandise exports of least developed countries (LDCs) are projected to increase by 1.8% in 2024, marking a slowdown from the 4.6% growth recorded in 2023. Export growth is expected to pick up in 2025, reaching 3.7%. Meanwhile, LDC imports are forecast to grow 5.9% in 2024 and 5.6% in 2025, following a 4.8% decline in 2023. These forecasts are underpinned by GDP growth estimates for LDCs of 3.3% in 2023, rising to 4.3% in 2024 and 4.7% in 2025.

The prospects for Global FDI flows are more disconcerting. According to the UN Trade and Development (UNCTAD’s) World Investment Report 2024, FDI fell 2% to USD1.3 trillion in 2023, as trade and geopolitical tensions weighed on a slowing global economy. The report underscores that the headline figure exceeds -10% when excluding a few European conduit economies that registered large swings in investment flows. FDI flows to developing countries dropped 7% to USD867 bn, with Sub-Saharan Africa attracting only USD53 bn in FDI in 2023. The Report further highlights that:

1. Tight financing conditions led to a 26% fall in international project finance deals, critical for infrastructure investment. International project finance is crucial for the poorest countries, making them more vulnerable to the global downturn in this type of investment.
2. Crises, protectionist policies and regional realignments are disrupting the world economy, fragmenting trade networks, regulatory environments and global supply chains. This undermines the stability and predictability of global investment flows, creating both obstacles and isolated opportunities.
3. While prospects for 2024 remain challenging, modest growth in FDI flows for the year remains possible, citing easing financial conditions and investment facilitation efforts in both national policies and international agreements.
4. Investments are growing in several global value chain-intensive manufacturing sectors like automotive and electronics in regions and countries with easy access to major markets. But many developing countries remain marginalized, struggling to attract foreign investment and participate in global production networks.

Foreign direct investments declined in most regions
Foreign direct investment (FDI) inflows by economic grouping and region, billions of dollars and percentage change

Source: UN Trade and Development (UNCTAD)

Credit and Political Risk Insurers (CPRIs) also faced new challenges as the year 2024 is ending. The European Banking Authority (EBA) released its long-awaited recommendation on the treatment of credit insurance as a credit risk mitigant (CRM) tool under the Basel regulation. The EBA decided against recommending an alternative approach for banks using credit insurance for credit risk mitigation. This topic now moved to the European Commission, which must balance financing the real economy with the need for competitiveness and innovation, while considering the EBA’s strict adherence to Basel standards.

Geopolitical tensions pose downside risks to the global economy and is adding challenges to CPRI underwriters through a surge in uncertainties, from protectionism to political uncertainty in major EU countries and ongoing conflicts in Russia-Ukraine and the Middle East, including tensions in the South-China-Sea and with Taiwan. This is a moving environment which requires proactive adaptation from underwriters and guarantors.

ICIEC’s Women in Credit and Investment Insurance

A Trajectory for Gender Responsiveness and Balance in the Workplace

Of the current cohort of ICIEC’s 85 staff 15 are women. They vary from Country Managers, four of whom are featured in this article, to finance, underwriting, credit risk, corporate affairs, training, communications and marketing, human capital and resources, and public relations professionals. Their commitment, aspirations, knowledge, experience, expectations, and career pathways are universal, irrespective of the various metrics of identity, be it ethnicity, gender and creed.

A Bright Future Built on Resilience, Embracing Digitalisation and AI, and Empowering the Next Generation of Credit InsurersThe Berne Union is the industry body of the International Union of Credit and Investment Insurers, of which ICIEC is a member. Despite the geopolitical tensions, the sluggish global economic recovery, and supply chain disruptions, 2023 was a “huge” year for export credit. BU members provided over USD3 trillion new support for international trade in 2023, expanded across business lines. All this happened under the stewardship of Ms. Maëlia Dufour, President of the Berne Union, and seasoned credit insurer in her other role as Chief International Officer, BPIfrance Assurance Export. With her two-year term ending on 31 October, Ms. Dufour discusses with Mushtak Parker in an exclusive interview in her capacity as President of the Berne Union, the state of the credit and investment insurance industry, the challenges of digitalization and AI, the economic power of gender balance, the priorities going forward, but at the same time looking back at the achievements of the last two years

One observation of our members is that contract timeline is longer and therefore contract close takes longer. The contract pipeline is dominated by big ticket transactions in defence, aviation and cruise ships, and other sectors too. But the two top priorities in demand according to our members is a big increase in demand to underwrite SME business and all aspects of climate related projects involving green and transition projects. Another priority that often comes up is digitalisation and AI with the aim of simplifying and speeding up the process for clients to give answers quicker, communicating and matchmaking between exporters and buyers.

We are seeing many potential disruptions in supply chain such as the trade route disruptions in the Red Sea (due to the conflict in the Middle East) and the Panama Canal (due to severe drought), and of course the conflict in Ukraine, the subdued global economic recovery and GDP growth. To what extent have these factors affected the industry and the business of your members?

Our members have been around for many years. They have been faced with several crisis before including the financial crisis of 2008, the Middle East Crisis, the COVID-19 crisis, the Supply Chain Crisis because of the Ukraine conflict. What we have realised is that we have always been very resilient, and always been there for our clients. During crisis we always ask clients about their needs. If the need changes, then we brainstorm and create new products. As such we have come up with new products depending on the various tensions.

If we look ahead, we have had a record number of general and presidential elections in 2024 in various parts of the world. We are all looking ahead to the US elections in November 2024. This is the one that counts. In other markets such as in Africa, we have the sovereign debt issue. As a result, it is true more exporters are asking for support and guarantees on African contracts. There is a lot of risk involved, but being an insurance provider, you must take risks.

Ukraine is very important. Many ECAs have signed MoUs with Ukraine to tell them we are ready to help in the reconstruction of the country. I know some governments have provided big loans for Ukraine, but the biggest problem we have heard is that there are some short-term contracts, but we don’t have any demand for medium-and-long-term contracts. The reason is that onsite visits especially for projects such as hospitals and roads are important. You need to have people on the ground. But because of the conflict, the security of the people is at risk. In France, for instance we look at this security issue very tightly compared to some other countries. The security of staff on the ground is a major concern for members of the Berne Union. Another problem is that they would find it difficult to get financing from the bank, unless the bank is 100% covered. BU members however have expressed their will to help in the reconstruction of Ukraine.

Developing countries consistently stress the high cost of credit and investment insurance which deters market entry and penetration. They talk about exaggerated risk perceptions of the international credit rating agencies about their markets which they say is unfair. This has led to the payment of extra premiums and higher cost of finance. Do you think that developing countries are getting a fair deal on credit and investment insurance and is there a two-tier system in pricing risk between developed and developing markets?

It is true that the cost of premium is a major issue. As you know we follow the OECD rating scale of Categories 0 to 7. If the country is rated 5, 6 or 7, the premium would be higher. It is a decision taken by economists inside the OECD. We cannot tell them why you rated a country 6 and not 5. Not surprisingly, it is the country that says we deserve a 5 and not a 6 rating.

You are right this is an issue for the developing countries, but we must take it as it is. Talking about a premium, Ukraine was saying that their premium was too high. They are at war, so they are in Category 7. They would like to be in Category 6, but we must comply with the OECD rating.

You have flagged climate action and finance as a key priority for Berne Union members. Especially as the world approaches COP29 in Baku. What about other areas such as food insecurity, post-pandemic health systems and clean energy transition?

We deal a lot with clean energy transition projects and green projects. Regarding climate action and finance, we look at three things: i) Decarbonisation of our portfolio, ii) Creating financial incentives to better insure green and transition projects, iii) Government policies and strategies and considering the statements of the various COPs.

Food security is very important. Some members do short term underwriting of agriculture business and for healthcare projects, both of which we support. There have been discussions with the OECD to give some financial incentives in support for healthcare contracts.

The phasing out of fossil fuels will take some time. The credit insurance industry is no longer interested in underwriting the coal, oil and gas industries. There are some countries that have been very clear in that that they will not support investments in fossil fuels. There are new emerging sectors such as critical minerals – nickel, manganese, lithium, cobalt etc. We see greater movement in this direction, and it is now becoming a priority sector for our members.

How important is adopting digitalization in across-the-board applications for the de-risking industry to embrace the defining challenges in the world – trade, investment, food security, climate action, clean energy transition, mitigating catastrophic climate events and natural disasters? Generative and/or extractive AI, Blockchain and Tokenisation are the great disruptors currently albeit they are all at their nascent stages of evolution. Digital trade has grown rapidly reaching USD4.25 trillion in 2023. The passing of the UK Electronic Trade Documentation Act 2023 is fast gaining traction as a global model. What are the implications for trade, trade finance and trade insurance ecosystem?

I can tell you no one ignores the challenge and opportunities of digitalisation. Nevertheless, the biggest markets such as the UK, France, Germany and so on can invest in digitalisation infrastructure and the cost is always very high especially for IT budgets. Some of the smaller nations such as Poland are very much advanced in digitalisation despite their size. Everybody wants to digitalise. We also have the rapid emergence of generative and extractive AI, Blockchain and Tokenisation. The Chinese are more advanced in this. They know that it is a pain for the client to have to write down the information on an application form. If everything is digitalised, then it goes quicker for them. Digitalization is vital for our clients and of course for the teams working inside the insurance institutions. There is a correlation between the increase in digital trade and uptake of digitalisation in insurance institutions.

Of course, we must look at AI and its applications for the credit insurance industry. We must use it in an appropriate manner. It is too early to say how it will impact the industry because we are still at the early stage. Everything is moving so fast. We must catch up otherwise we might be left behind. For AI, I can see an adoption timeline within the next year. There is also the issue of cybersecurity, online fraud and the various emerging risks. A lot of Berne Union members are looking at this. It is a very important issue for our members.

What is the current state of women in credit and investment insurance including among BU members? What measures are the BU and its members adopting to enhance the role of women in the industry across the spectrum?

I am very happy about the status and role of women inside the Berne Union. We have had three women serving as President consecutively for the last three terms. My term expires at the end of October 2024. The next President I believe following the annual meeting will be a man. In the industry, there are almost as many women as men. There is a balance between men and women. It is true when it comes to executive members, it is dominated by men. Nevertheless, if I look at some of major ECAs then there are several women who are Presidents. In our industry there is not really a problem of gender balance.

The latest OMFIF Gender Balance Index 2023 relating to central banking and financial services concluded that although progress has been made, the gap between men and women especially in senior positions in finance is still huge.

I can tell you only what I see inside the Berne Union – the dignity and institutional culture we have with almost 300 people working at the organisation. We create a working group if we have a problem. When there is no problem why create a working group?

One thing I am very passionate about is our Young Professional Group of credit insurance cohorts because they are the future, the next generation, and about how to retain new talent. I have supported a positive engagement with our young professionals, establishing and encouraging them to speak at panel discussions, sometimes including with senior professionals. The young professional working group is about 100 strong. They learn from managers who attend the panel discussions on a range of topics – from products, processes to even human and wellbeing issues. I told them I don’t want it to be only top down but also bottom up. From their feedback, the defining areas of interest are digitalisation and the onset of AI.

The Berne Union is celebrating its 90th anniversary and ICIEC its 30th anniversary. ICIEC is a multilateral insurer with 50 member countries which uniquely operates under alternative Islamic insurance principles. Do the two institutions have something to learn from each and further their cooperation?

I am very happy ICIEC is a member of the Berne Union. We have members from all areas of the world, so we can learn more about their countries and institutions. It is very important to have member ECAs from all over the world. At the next annual meeting, our Chief Economist will give us an industry update from all parts of the world. There will be a member from the Middle East who will give an update on the region.

There is one thing that is very important inside the Berne Union in that before the annual meeting we send surveys to all members for them to tell us how they are organising, developing new products, what are the figures in ST and MLT business, for investment and so on. We get to learn a lot from these surveys. If there is something ICIEC has written as a new product, for example, another member might ask for more information. We have a lot of exchanges and networking at the annual meeting. We ask the members to give us some feedback on what they would like to talk about to create breakout sessions. I encourage ICIEC to write down what is relevant for them in the survey, so that we can take it into account.

Often the perception is that credit insurance is too expensive, so we won’t bother with it. The culture of credit and investment insurance and market penetration is still underdeveloped especially in the developing markets. What is the Berne Union doing in general in spreading the message of credit and investment insurance?

I agree about the perception that credit insurance is too expensive. It is difficult to ride seven horses at the same time. We do what we can. I think we have done it well. But there is always room for improvement. We do interact with peer international institutions such as the IMF, World Bank, OECD, WTO through speaking at conferences on these issues.

I think we must improve on our communication and engagement with member ECAs. During my presidency I have been asked to speak at many conferences which I have done. This contributes to spreading our message and what we can do for export trade and insurance. Another of my objectives is to leverage the huge data resource we have at the Berne Union and communicate much more what we are doing and how we can help.

As you come to the end of your two-year term in office as President of the Berne Union at the end of October 2024, what will be the legacy of Maëlia Dufour? What are the achievements you are most proud of?

I am very proud of what we have done on climate action, especially in facilitating green projects and transition, and giving financial incentives for such projects. I am also proud of the Young Professional Group I introduced at the Berne Union to ensure continuity and the next generation of credit and investment insurers, and to ensure knowledge transfer to them.

I am proud of the extensive data resource we have developed at the Berne Union. Every member must report its data. I am also proud of creating a much more interactive AGM where we can engage on a whole range of issues. I call them my export family. I am confident that the Berne Union will continue to excel as the voice of the industry, articulating its successes, achievements, and concerns whether in technical matters, product innovations and emerging risks.

Last year, our members underwrote USD3 trillion of trade and investment business. I expect this to increase over the next three years. I have been in this industry for decades and have come across many crises. The fact that we are still in business, reflects our resilience. I am sure we will come across other crises. If I look at the figures for the last two years, business insured in fact has increased despite the impact of the pandemic or Ukraine. The defining impacts which have affected our business are geopolitical tensions and climate change. Before the Ukraine conflict, our members did a lot of business with both Russia and Ukraine. The war has stopped all that.

Whether it is the McKinsey & Company’s ‘Women in the Workplace 2024’ report, OMFIF’s ‘Gender Balance Index 2024’, the ‘UN Sustainable Development Goals Report 2024’, or the observations of global leaders such as Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), the message is consistent: promoting gender balance in the economy and workplace is beneficial for inclusive growth and higher productivity. However, while there has been real progress for women at every level of corporate activity, this progress remains slow, particularly in advancing women into managerial positions.

The positive correlation between gender balance in the workplace and the wider economy, alongside key economic indicators such as GDP growth, productivity, and social and financial inclusion is undisputed. However, the gender balance gap varies from country to country regardless of economic status, with low-and-medium-Income-countries (LMICs) often disproportionately affected.

The reality remains that women are underutilized stakeholders, with lower participation in the economy and in leadership positions, including in financial services. The fact that diversity and gender balance are smart economics, and are essential for development agendas, increasing aggregate productivity and socio-financial inclusion, while also maintaining the dignity and wellbeing of women in the workplace and society, is beyond dispute.

The IMF in a blog on ‘Inclusion and Gender’ authored by Antoinette Monsio Sayeh, Deputy Managing Director, alongside economists Alejandro Badel and Rishi Goyal, the link between narrowing the gender gap in the workplace and potentially higher global economic outcomes was highlighted, particularly amid the weakest medium-term growth outlook in more than three decades.

The IMF’s World Economic Outlook, released in July 2024, projected global GDP growth at 3.2% in 2024 and 3.3% in 2025. The average growth rates for the Developed Economies are projected at 1.7% and 1.8% for the same period, while for the Emerging Market and Developing Economies are expected to grow by 4.3% for both 2024 and 2025. The two regions where the IsDB and ICIEC membership is concentrated, the Middle East and Central Asia, and Sub-Saharan Africa (SSA), are projected to grow at 2.4% in 2024 rising to 4.0% in 2025, while SSA alone is projected to fare slightly better at 3.7% in 2024 rising to 4.1% in 2025.

For developing countries, these figures suggest disproportionality not only in the impact of the subdued global economic recovery but also in sharing the burden of any remedial policy reforms. These numbers present both challenges and opportunities for narrowing the gender balance gap in the workplace, a reform that the IMF views as crucial to reviving economies amid the weakest medium-term growth outlook in more than three decades.

“With global growth predicted to languish at just 3% over the next five years, and with traditional growth engines sputtering, many economies are missing out by not tapping into women’s potential. Only 47% of women are active in today’s labor markets, compared with 72% of men. The average global gap has fallen by only 1 percentage point annually over the past three decades and remains unacceptably wide,” maintain the authors of the IMF Blog.

Gender Balance and GDP Growth

The IMF estimates that emerging and developing economies could boost GDP by about 8% over the next few years by raising the rate of female labor force participation by 5.9 percentage points—the average amount by which the top 5% of countries reduced the participation gap during 2014-19. This increase would more than offset the economic “scarring,” or output losses, inflicted on countries by the COVID-19 pandemic.

In search of new growth sources
Narrowing gender gaps in labor force participation could more than offset pandemic scarring.

Source: IMF Staff Calculations.
Note: Pandemic Output Loss is the percent deviation of projected real GDP in 2023 relative to the pre-pandemic (Jan. 2020) WEO projection. GDP gains are computed from narrowing the gender gap by 5.9 percentage points, which is the improvement achieved in the top 5 percent of EMDEs during 2014-19.