Macro Analysis /
Egypt

BoP Monitor: FPI and net borrowing drive improvement

    Key highlights

    • The overall Balance of Payments (BoP) registered a surplus of US$1.4bn in 3Q FY 18/19 and is back to Q4 FY 17/18 levels.
    • The fundamental BoP indicator turned positive in Q3 18/19, back to 2017/18 and 2010/11 levels.
    • The current account deficit widened in 3Q 2018/19 on the back of declining services balance, originating mainly from lower Suez Canal and tourism revenues.
    • The oil trade deficit deteriorated, hitting its worst levels and the non-oil trade balance saw its deficit stablise qoq and improve yoy. 
    • FPI climbed up in Q3 18/19 from Q2 18/19 and Q3 17/18, and net borrowing soared both on a quarterly and annual basis 
    • FDI switched from outflows to inflows in Q3 18/19, however it was less accentuated than the inflows of Q3 17/18. 
    • Tourism and Suez Canal revenues declined in Q3 18/19 from Q2 18/19, while remittances stabilised.  

    Petroleum trade balance deteriorates; non-petroleum remains stable 

    The trade deficit widened in Q3 18/19, hitting its worst level only attained once in Q2 14/15, due to total exports falling to US$6.6 bn in Q3 18/19 from US$7.5 bn in Q2 18/19 and US$6.8bn in Q3 17/18. Exports decreased on the back of falling oil exports that hit its lowest level since Q3 17/18. Additionally, total imports increased to US$17.1bn in Q3 18/19 versus UD$16.9bn in Q2 18/19 and US$16.0bn in Q3 17/18. 

    The petroleum trade balance registered a deficit of US$0.5 bn in Q3 18/19 mainly due to a significant fall in oil exports to US$2.5bn from US$3.2bn in Q2 18/19. The deficit was reinforced by an increase in petroleum imports to US$2.9bn from US$2.4bn in Q2 2018/19, however lower than US$3.5bn in Q3 17/18. The deficit is in line with the petroleum trade balance’s historical position that only register surplus on rare occasions, mostly pre-revolution. We expect the effect of the transition from importer to exporter of natural gas to start reflecting well on the trade balance by 2020.

    The non-petroleum trade balance saw a stable deficit of US$10.5bn in Q3 18/19 and US$10.2bn in Q2 18/19, where the small decrease in non-oil exports to US$4.1 bn in Q3 18/19 from US$4.3bn was offset by a decrease in imports to US$14.2bn in Q3 18/19 (from US$14.5bn in Q2 18/19). The drop in imports could be an indicator of weakening demand that was eaten up by pre-floatation price hikes, a reduction in real income and a prolonged period of dissaving. 

    FPIs jump; net borrowing soars

    FPIs is back to the high levels seen in Q2 16/17, switching from an outflow of US$2.7bn in Q2 18/19 to an inflow of US$7.0bn in Q3 18/19; a 362% rise qoq. The shift from outflows to inflows reflects foreign investors shifting their attention back to EM following the US Fed’s intention to keep rates constant for the rest of the year, as well as the increase in real yields offered in EM debt securities, supported by the appreciation of the EGP against US$, despite the CBE cutting rates in February. 

    FDIs slightly increased to US$1.8bn in Q3 18/19 from US$1.7bn in Q2 18/19, growing by 4% qoq despite seeing a 22% yoy fall from US$2.3bn in Q3 17/18. 

    Net borrowing soared as it moved to USD 3.9bn in Q3 18/19 from 
    -US$0.01bn in Q2 18/19, while also growing 60% yoy from an initial US$2.4bn in Q3 17/18. The jump comes on the back of long-term loans growing significantly qoq and  an 82% yoy coupled with short-term net suppliers’ credit rising 255% qoq and 60% yoy. 

    The main forces impacting the BoP are the non-petroleum balance and FPIs, followed by remittances and current account balance. The major difference from the previous three quarters being the significant size and impact of FPIs in the BoP this quarter. 

    Fundamental BoP jumped to the positive side; where it stayed briefly during FY 17/18 and FY 10/11. FPIs and remittances together offset the the pull from non-petroleum balance and the current account deficit, hence pushing up the fundamental BoP to US$3.2bn in Q3 18/19 from -US$4.0bn in Q2 18/19.