BoP records overall deficit of $10.5bn in FY 2021/22: CBE

Hossam Mounir
7 Min Read

Egypt’s transactions with the external world witnessed an improvement in the current account deficit as it declined by 10.2%, registering $16.6bn in fiscal year (FY) 2021/22 compared to $18.4bn in the preceding fiscal year.

This came mainly due to the unprecedented increase in oil- and non-oil merchandise exports which rose 53.1%, together with the significant recovery of the tourism revenues which more than doubled compared to the previous fiscal year, Moreover, a marked increase was seen in Suez Canal receipts.

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, thus driving central banks abroad to adopt tighter monetary policy to contain the inflation waves.

On the other hand, net inflows of the capital and financial account decreased on the back of non-residents withdrawal from the portfolio investment in Egypt, which coincided with the contractionary monetary policies adopted by the Federal Reserve that led to a mass exodus of hot money from the emerging markets. Against this background, the balance of payment (BoP) recorded an overall deficit of $10.5bn in FY 2021/2022, almost all of which was realized in second half of FY 2021/22.

The following positive factors contributed to the improvement of the current account deficit as compared to the previous year:

Tourism revenues rose by $5.9bn to $10.7bn from $4.9bn, partly offsetting the adverse effect of the drop in the number of tourists from Russia and Ukraine since the outbreak of the Russian-Ukraine crisis.

Transport receipts increased by 29.3%, to reach $9.7bn against $7.5bn, mainly due to the rise in Suez Canal receipts by 18.4% to $7.0bn from $5.9bn.

The oil trade balance ran a surplus of $4.4bn against a slight deficit of $6.7mn in the previous FY. This came mainly as a result of the surge in oil exports by $9.4bn in light of the increase in the value of natural gas exports on the back of the noticeable hike of global prices and the rise of their exported quantities, along with the opening of new markets in Europe, mainly in Turkey, Italy, France, Spain, Croatia, and Greece.

Egyptian workers’ remittances went up by 1.6% to register $31.9bn against $31.4bn a year earlier.

The improvement in the current account was counterbalanced by the following factors:

The non-oil trade deficit widened by 13.7%, to register $47.8bn from $42.1bn; due to the increase in non-oil imports which surpassed that of non-oil exports, as illustrated below:

Non-oil merchandise imports rose by 18.7% to $73.8bn, The rise was concentrated in the imports of: Production inputs, such as propylene polymers, cast iron, and inorganic / organic compounds, Agricultural products, mainly soybeans, corn, and wheat due to the rise in their global prices; and medicines, pharmaceutical preparations, gauze pads and vaccines in light of the state’s efforts to combat COVID-19 pandemic.

Non-oil merchandise exports increased 29.1% to $25.9bn. The increase was mainly in the exports of: Finished goods, led by phosphate /mineral fertilizers, transmitter and receiver devices of radio/television, ready-made clothing, medicines, and household electric appliances; and Semi-finished goods, mainly inorganic / organic compounds and ethylene-propylene polymers.

Investment income deficit widened by 27.1% to reach $15.8bn from $12.4bn, as a result of the following:

Investment income payments went up by $3.8bn, to register $16.8bn, reflecting the rise in both: Earnings on FDI in Egypt; Interest and dividends of non-residents’ investments in Egyptian bonds and securities.

Meanwhile, investment income receipts moved up by $423.6bn to $996.5m against $572.9m, mainly due to the rise in interest and dividends on foreign bonds and securities.

As for the capital and financial account, net inflows retreated in FY 2021/2022 to $11.8bn from $23.4bn, as a consequence of the following main developments:

Portfolio investment in Egypt shifted from a net inflow of $18.7bn to a net outflow of $21.0bn.

This withdrawal of investment reflected investors’ concerns over the Russian-Ukraine conflict, as well as the contractionary monetary policies adopted by the Federal Reserve leading to outflows of hot money from emerging markets.

Medium- and long-term external loans and facilities recorded a net disbursement of only $1.5bn against $6.4bn, on the back of a rise in repayments to $6.2bn from $3.4bn, and a decline in disbursements to $7.6bn from $9.8bn.

Changes in the liabilities of the CBE posted a net inflow of $15.7bn, of which $14.1bn were recorded in January/March 2022, mostly representing deposits from Arab countries.

Net FDI in Egypt rose by 71.4% to $8.9bn, as shown below:

Net FDI in non-oil sectors mounted by $5.2bn, to record a net inflow of $11.6bn of which $7.2bn were registered in January/June 2022, as a result of the following: Net inflows for green field investments or capital increases of existing companies increased by $2.1bn, to register $3.4bn $238.2m of which went to greenfield investments ,The sale proceeds of companies and productive assets to non-residents rose by $2.2bn, to record $2.3bn of which $2bn were during the period Jan./March 2022 ,Net inflows for real estate purchases by non-residents mounted by $353.9bn, to register $970.3bn; and Net retained earnings and credit balances surplus increased by $525.7bn to stand at $4.9bn.

FDI registered a net outflow of $2.6bn against $1.2bn in the previous FY. This came on the back of: The rise in outflows to $7.3bn, from $6.3bn representing cost recovery for exploration, development, and operations previously incurred by foreign partners; and the decline in total inflows representing new investments of foreign oil contractors to only $4.7bn from $5.1bn.

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