Macro Analysis /

Egypt BoP monitor – Deficit in FY2018/19, despite 4Q surplus

    Al Ahly Pharos Securities Brokerage
    2 October 2019

    Key messages about the BOP for 4Q FY18/19

    • The overall BOP registered a deficit of USD 0.1 bn in FY2018/19, driven single-handedly by a sharp fall in the financial and capital account which was not offset by an improvement in the trade and services balance. BoP scored a surplus of USD 0.2 bn in 4Q2018/19.
    • The Fundamental BoP indicator fell QoQ but remained positive in 4Q18/19.
    • The Current Account Deficit narrowed in 4Q 2018/19 on the back of rising Services Balance, originating mainly from Tourism revenues, and an improved Trade Balance driven by higher exports and lower imports.
    • The Oil trade balance registered a surplus, and the non-oil trade balance improved, both driven by higher exports.
    • FPI plunged both in 4Q 2018/19 and during FY2018/19 as a whole, a situation that has reversed in 2019.
    • Net borrowing dropped on a quarterly and annual basis.
    • FDI fell back this quarter, after a weak improvement during the year, however the drop was less accentuated when looking at FY2018/19 altogether.
    • Tourism jumped up in 4Q 2018/19 and accordingly FY2018/19 saw higher tourism revenues.
    • Remittances grew in 4Q2018/19 but fell in FY2018/19 compared to FY2017/18.  

    Petroleum trade surplus; Non-petroleum deficit improves

    The trade balance deficit narrowed in 4Q2018/19, on the back of higher exports and lower imports, hitting USD 8.3 bn from USD 10.5 bn in 3Q2018/19. Total exports increased to its highest level since 2007/08, hitting USD 7.6 bn in 4Q2018/19, up from USD 6.6 bn in 3Q2018/19 and USD 7.0 bn in 4Q20107/18. Additionally, total imports fell to USD 15.6 bn in $Q 2018/19 from USD 17.1 bn in 3Q18/19 and USD 16.3 in 4Q17/18. The decrease in imports reinforced with the increase in exports caused the trade deficit to narrow.

    The petroleum trade balance registered a surplus, a rare event, of USD 0.3 bn in 4Q 2018/19 mainly due to a significant rise in oil exports to USD 3.0 bn from USD 2.5 bn in 3Q18/19. The surplus was reinforced with a slight decrease in petroleum imports to USD 2.7 bn from USD 2.9 bn in 3Q 2018/19. The surplus breaks the petroleum trade balance’s historically negative position where surpluses occurred only rarely and mostly pre-revolution.

    The non-petroleum trade balance significantly improved from a deficit of USD 10.5 bn in 3Q 2018/19 to USD 8.6 bn in 4Q2018/19. Non-petroleum exports increased to USD 4.5 bn from USD 4.1 bn in 3Q2018/19, in addition to non-petroleum imports falling to USD 13.1 bn from USD 14.2 bn in 3Q2018/19.

    On an annual basis, trade deficit slightly widened 2% from USD 37.3 bn in FY 2017/18 to USD 38.0 bn in FY 2018/19, as the increase in exports from USD 25.8 bn in FY2017/18 to USD 28.5 bn in FY 2018/19 was offset by an increase in imports from USD 63.1 bn in FY 2017/18 to USD 66.5 bn in 2018/19. Oil trade balance recorded a surplus in FY2018/19 for the first time since 2012/13, hitting USD 81 mn in FY 2018/19 for up from a deficit of USD 3.7 bn in FY2017/18. The non-petroleum trade balance however saw its deficit widening 13% in FY2018/19 and hitting USD 38.0 bn from a deficit of USD 33.6 bn in FY2017/18.

    Tourism drives services balance; Suez Canal and remittances stabilize
    Tourism revenues saw a sharp 22% QoQ rise, from USD 2.6 bn in 3Q 2018/19 to USD 3.2 bn in 4Q 2018/19, and similarly registered a 25% YoY increase, from USD 2.6 bn in 4Q 2017/18. FY2018/19 saw tourism revenues rise 28% YoY from USD 9.8 bn in FY2017/18 to USD 12.6 bn in FY2018/19.

    Remittances stabilized annually but grew 13% QoQ to USD 6.9 in 4Q18/19 and remains within the USD 6-7 bn bracket; where it has been for the last 8 quarters since 1Q2017/18. FY2018/19 saw a 5% YoY decline in remittances to reach USD 25.2 bn in FY2018/19 down from USD 26.4bn in FY2017/18.

    Suez Canal Revenues fell 6% YoY, falling to USD 1.5 bn in 3Q18/19 from USD 1.6bn in 4Q17/18; the second negative annual growth since 4Q16/17, however, climbed 8% QoQ from USD 1.3 bn in 3Q18/19.

    The Services Balance climbed 31%QoQ to USD 3.3 bn in 4Q2018/19 from USD 2.5 bn in 3Q2018/19 on the back of rising tourism receipts as the remaining components remained stable. FY2018/19 therefore saw a 17% rise in the services balance, hitting USD 13.0 bn from USD 11.1 bn in FY2017/18.

    Current account deficit narrows, driven by balance of goods & services improvement
    The Current Account Deficit significantly narrowed to USD 0.6 bn in 4Q 2018/19 from USD 3.8 bn in 3Q2018/19, but slightly unchanged from USD 0.64 bn in 4Q2017/18.  The improvement of the trade and services balances as well as transfers, was only hindered by the deterioration of the income balance, hence ultimately narrowed down the current account deficit.

    However, the current account deficit increased 37% YoY in FY2018/19 to USD 8.2 bn from USD 6.0 bn in FY2017/18.

    FPIs plummet; FDIs falls back again after short-lived rise; Net borrowing drops
    FPIs were down 54% QoQ yet switched from outflows to inflows YoY, hitting USD 3.2 bn in 4Q2018/19 down from USD 6.9 bn in 3Q2018/19 but up from outflows of USD 2.8 bn in 4Q2017/18. The shift from outflows to inflows reflects foreign investors shifting their attention back to EM following the FED’s interest rate cut, as well as the increase in real yields offered in EM debt.  FY2018/19 saw a sharp 65% drop in FPIs, down to USD 4.2 bn from USD 12.1 bn in 2017/18.

    FDIs went down after a slow recovery through 2018/19, to USD 1.3 bn in 4Q2018/19 from USD 1.8 bn in 3Q 2018/19 and USD 1.7 bn in 4Q17/18, falling 30% QoQ and 26% YoY. Overall, FDIs fell 24% in FY2018/19, to USD 5.9 bn from USD 7.7 bn in FY2017/18.

    Net borrowing nose-dived both quarterly and annually as it moved from USD 3.8 bn in 3Q18/19 to USD 1.3 bn in 4Q18/19, while also falling 65% YoY from USD 3.3 bn in 4Q17/18. The jump comes from long term loans falling significantly in addition to short term net suppliers’ credit dropping.  Overall, Net borrowings fell 40% in FY2018/19 compared to FY2017/18, from USD 10.3 bn to USD 6.3 bn.

    The Financial account balance accordingly hit the ground; dropping to USD 0.8 bn in 4Q18/19 from USD 6.0 bn in 3Q18/19 and USD 3.0 in 4Q2017/18. Naturally, the financial account balance plunged 61% during FY2018/19, hitting USD 8.7 bn down from USD 22.1 bn in FY2017/18.  

    Fundamental BoP drops, negatively impacted by FPIs plunge
    The main forces impacting the BoP are the Non-Petroleum balance and remittances both quarterly and annually, as FPIs and the current account retracted.

    Fundamental BoP remains positive but dropped from 3Q2018/19. Together, FPIs and Remittances were not enough to offset the pull down of the Non-Petroleum balance, hence pushing down the fundamental BoP indicator from USD 3.2 bn in 3Q18/19 to USD 2.0 bn in 4Q18/19. The big drift shows as the fundamental BoP indicator plummets from USD 10.8 bn in FY2017/18 to USD – 1.4 bn in FY2018/19.