Egypt’s current account deficit narrowed by 20% to USD 3.2 bn in 1Q 2022-23 on the back of higher FDI, exports and tourism revenues, according to central bank figures (pdf) out Thursday.

KEY DRIVERS OF THE IMPROVEMENT-

#1- A surge in FDI makes up for hot money outflows: Net FDI inflows doubled to hit USD 3.3 bn, driven by USD 1 bn in sales of local entities to foreign investors and USD 1 bn of investment in existing companies.

#2- A tourism rebound: Tourism revenues surged more than 43% y-o-y to USD 4.1 bn in the first quarter of the current fiscal year. This was driven by a more than 50% increase in arrivals, which totalled 3.4 mn during the three-month period, the central bank said.

Expect that to continue this year: Fitch Solutions is projecting annual revenues to reach a record USD 13.6 bn this year as 11.6 mn tourists flock to the country.

#3- More exports, fewer imports: The trade deficit narrowed to USD 9.1 bn, down 18% from the same period last year. This was the result of a 13% increase in exports — driven mostly by the oil sector — and a 4% drop in imports. Non-oil imports were down almost 10% y-o-y due to the central bank’s move to curb imports while oil imports rose by more than a quarter.

REMEMBER- Now-scrapped restrictions brought in by the CBE amid the FX crunch last year had stymied the import of all but the most essential goods, causing a backlog at ports that has only in recent weeks been cleared.

#4- Suez Canal receipts rose 19% to USD 2.0 bn in the July-September period, driven by a 14% increase in the tonnage of goods transiting the canal, the central bank said.

OFFSETTING THE IMPROVEMENT-

#1- Portfolio flows continued to leave the country: Foreign investors pulled almost USD 2.2 bn from Egypt during the quarter as the war in Ukraine and interest rate hikes by global central banks drew funds away from emerging markets. Egypt saw USD 3.6 bn of inflows in the same period a year earlier.

On the bright side: The rate of outflows is slowing. Almost USD 15 bn left the country in 3Q 2022-2023 and more than USD 3.7 bn in 4Q.

#2- Remittances were down: The amount of foreign remittances entering the country fell more than 20% to USD 6.4 bn during the July-September period.

Continuing the trend: Egypt’s current account deficit narrowed by 10% to USD 16.6 bn in FY 2021-2022, buoyed by oil and non-oil exports, rising tourism receipts, and a jump in FDI. The government is aiming to reduce the current account deficit to 2% of GDP over the medium term.