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Sunday, 17 October 2021

Egypt’s balance of payments flips to surplus in 2020-2021, current account deficit rises

Egypt’s balance of payments flipped to a surplus of USD 1.9 bn in the state fiscal year ending 30 June 2021, compared with a deficit of USD 8.6 bn in the previous fiscal year, when the early days of the covid-19 pandemic wiped out tourism and slowed global trade. “This improvement proved the ability of the Egyptian economy to quickly recover from the crises that hit the global economy,” the central bank said in a statement (pdf) released over the weekend that enclosed the figures.

What’s the balance of payments? You can think of it as the delta between all of the money that comes into the country thanks to things that bring in money (tourism, exports, Suez Canal revenues, FDI, remittances, etc) and the money we send outside the country (largely thanks to imports of everything from food to fuel).

Our current account deficit widened by USD 7.2 bn in the state fiscal year ending 30 June 2021, closing FY 2020-2021 at USD 18.4 bn compared with USD 11.2 bn the previous year, a fact the CBE attributed to a “noticeable drop in tourism revenues” thanks to the impact of the pandemic on tourism. (Diving a bit deeper, we think the current account deficit actually shrank from USD 5.7 bn in 3Q2020-21, likely on the back of rising remittances and portfolio investments.)

Our biggest gainer was remittances, which rose by 13.2% y-o-y in FY 2020-2021 to USD 31.4 bn, up from USD 27.8 bn the previous fiscal year. Inflows rose almost 30% to USD 8.1 bn in 4Q, up from USD 6.2 bn in the same period last year, the CBE noted last month.

Thank you, carry traders: Portfolio investments also turned positive this year, recording a net inflow of USD 18.7 bn this year, compared to a net outflow of USD 7.3 bn in the FY2019-20. Egypt’s high real interest rates have kept it as one of the most attractive emerging markets destinations for the carry trade, as the CBE kept interest rates on hold for the past seven MPC meetings. We’ll have to wait until 28 October to see if last month’s spike in inflation, coupled with the chance of a Fed tapering, will drive it to buck the trend.

And despite supply chain disruptions, global port lockdowns (not to mention a ship which will not be named) Suez Canal revenues saw a slight rise of 1.7%, to USD 5.9 bn, up from USD 5.8 the year before.

Trade deficit widened last fiscalyear: The non-oil trade deficit widened to USD 42.1 bn, from USD 36 bn in FY2019-2020, a 16.7% increase due to non-oil imports rising 15.2% y-o-y to record USD 62.1 bn from USD 53.9 bn.

Foreign direct investment for the year also dipped 30% y-o-y to USD 5.2 bn from USD 7.5 bn, which the statement attributed to continued blowback from the pandemic.

It was not a good year for tourism: Tourism revenues dropped by half during the fiscal year to record USD 4.9 bn, down from USD 9.9 bn during FY2019-2020, mainly due to the impact lockdowns and travel restrictions (thanks red list). That said, tourism is en route to recovery, with arrivals averaging 400k people per month — a near 40% increase in monthly average figures prior to the pandemic. This is only expected to get better as a number of nations lift these travel restrictions, including the UK, which took us off the red list last month. Bookings to Egypt and Turkey from the UK have soared 400% since our removal from the red list, an Easyjet executive told the Guardian last week.

MORE GOOD NEWS ON THAT FRONTRussia will lift remaining covid-related restrictions on flights to Sharm El Sheikh and Hurghada from November 9, Russian state-run outlet TASS reported the government’s coronavirus task force as saying last week. Other countries to see restrictions lifted on the same date include Tunisia, Thailand, the Netherlands, Sweden, Norway, Iran, Slovenia, and Oman, according to Reuters.

Russia has been gradually reinstating direct air links with Hurghada and Sharm El Sheikh since August 9, when direct flights between Moscow and the two coastal cities were resumed after a six-year hiatus following the 2015 Metrojet crash in Sinai. Since then, Russia has twice upped the number of flights between Moscow and the two Egyptian resorts to reach as many as 25 per week, and expanded flights to other Russian cities outside of Moscow.

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