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Sunday, 9 October 2022

Egypt ends FY 2021-2022 on a good note, despite turbulence

Egypt’s current account deficit narrowed by 10.2% to USD 16.6 bn in FY 2021-2022, buoyed by oil and non-oil exports, rising tourism receipts, and a jump in FDI, according to central bank figures (pdf) released Thursday. “These developments came despite the decline in global economic activity triggered by the Russian-Ukrainian crisis, which has driven up energy and commodity prices significantly,” leading to a monetary tightening wave to put a cap on inflation, the central bank said.

The brightest spot: Tourism receipts more than doubled y-o-y to USD 10.7 bn as tourist arrivals gained momentum after a slump triggered by the war in Ukraine, which had a significant impact on tourism from Russia and Ukraine — two of our key tourism markets. Tourist arrivals increased more than 85% y-o-y in 1H 2022 to reach 4.9 mn visitors. Egypt has been working overtime to attract visitors from other European markets to drive inbound traffic, with efforts also including luring tourists from little-tapped markets in Latin America and other markets, including the Gulf.

FDI also picked up steam during the year: Net foreign direct investment rose 71.4% y-o-y to USD 8.9 bn during the fiscal year that ended in June. Net FDI in the non-oil sector recorded USD 11.6 bn, the majority of which came in during 2H 2021-2022 (which is when our Gulf neighbors went on a spending spree in Egypt). Greenfield investments and capital increases from existing companies accounted for USD 3.4 bn of non-oil FDI, according to the balance of payments.

Rising natgas prices + bigger export volumes moved our oil trade to the positives: Egypt’s oil trade balance recorded a USD 4.4 bn surplus for the year, from a deficit of USD 6.7 mn during FY 2020-2021, thanks to the global hike in natural gas prices and our entry to new markets including Turkey, Italy, France and Greece.

Also contributing to the narrowing current account deficit:

  • Suez Canal revenues jumped 18.4% y-o-y to a record USD 7 bn for the fiscal year, and hit a monthly record of USD 744.8 mn in July.
  • Overall exports rose over 53% y-o-y to EGP 43.9 bn thanks to an increase in both oil and non-oil exports.
  • Remittances from Egyptian expats increased slightly to USD 31.9 bn, from USD 31.4 bn last year.

Offsetting the improvements:

  • Non-oil trade, which saw its deficit widen 13.7% y-o-y to USD 47.8 bn. Non-oil imports jumped 18.7% y-o-y on the back of rising commodity prices, namely that of agricultural products — wheat, soybeans and corn.
  • Outflows: Unease over the war and rising interest rates resulted in some USD 21 bn in net outflows over the year, reversing net inflows of USD 18.7 bn the year prior amid a “mass exodus of hot money from emerging markets.”

On a quarterly basis, the trends are much the same: Egypt’s current account deficit in 4Q 2021-2022 came in at USD 2.96 bn, dropping 42% y-o-y, while FDI soared 272% y-o-y to USD 1.59 bn. Reuters also has the story.

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