Balance of payments posts surplus, but deficit expected next year

Alex Dziadosz
3 Min Read

CAIRO: Bolstered by cash from tourists and foreign investors, Egypt s balance of payments – an accounting yardstick that tracks the flow of a country s global transactions – edged up by about $100 million to post a surplus of $5.4 billion last fiscal year, the Central Bank of Egypt announced this weekend.

Egypt s current account, which is largely determined by trade balance, registered a surplus of $0.9 billion, down from $2.7 billion last year.

Simon Kitchen, an economist with the investment bank EFG-Hermes, said he expects the current account will slide into a deficit next year as Egyptians buy more from abroad and sell less in sluggish European markets. Slipping oil prices could also cheapen Egypt s energy exports, even if their volume remains roughly the same, he said.

While Egyptian merchandise exports grew by $14.1 billion last year, imports outpaced them, rising by $15 billion to $52.8 billion, driving the merchandise trade deficit to $23.4 billion.

Many quickly-developing economies run current account deficits as they borrow from overseas to finance their expansion, Kitchen said. Investors generally expect these ventures to pay off over the following years.

The vulnerability for Egypt is the European slowdown, Kitchen said.

A slowdown in Europe could hamper revenues from tourism and the Suez Canal – two of the biggest catalysts of growth here. And while investors from the Gulf should stay relatively flush, about a third of foreign cash comes from the United States and another third from Europe, Kitchen said, meaning recessions in either region could lessen the overall amount of foreign direct investment (FDI) here.

Skittishness over incidents like the Agrium factory dispute could also deter some investment, he said.

But for the near future, Kitchen said he expects FDI to stay robust, hovering around $10 billion per year and keeping the overall balance of payments in surplus.

According to the Central Bank, FDI in Egypt jumped to $13.2 billion from $11.1 billion this year, suggesting much of the country s record expansion is rooted there.

Just under half of this investment went to new projects, around a third to energy sector projects, $400 million into the real estate sector, and about $2.3 billion came from foreigners buying local companies.

The Central Bank also confirmed that Egypt s economy grew 7.2 percent last year, with the ration of investment to gross domestic product up by 22 percent.

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