Macro Analysis /
Egypt

Egypt BoP Monitor 2Q20/21: Strong recovery from the pandemic; sturdy surplus

  • BoP recorded a surplus of USD1.5bn in 2Q after almost a year of deficits

  • Financial account recovered with rising FDIs and sustained FPIs

  • Current Account Deficit widened on bigger non-oil trade deficit and slightly weaker qoq remittances

Al Ahly Pharos Securities Brokerage
14 April 2021

The overall Balance of Payments recorded a surplus of USD 1.5bn in 2Q20-21 which is positive as it comes following 3 consecutive quarters of BoP deficits which themselves were following a couple of barely breakeven quarters. The improvement in Egypt’s foreign currency position reflects its resilience towards uncertainties and ability to overcome the covid-19 shock. The growth from a deficit of USD 1.0 mn in 1Q20-21 and a surplus of USD 0.2 bn in 2Q19-20 was made possible through a stronger Capital and Financial Account that offset a wider Current Account Deficit.

Positive developments compared to 1Q20-21

Exports: While the trade balance overall saw a wider deficit in 2Q, exports performed well, hitting USD 6.6 bn in 2Q20-21 from USD 6.3 bn in 1Q20-21. This comes on the back of higher oil exports of USD 2.0bn compared to USD 1.6bn in 1Q2021, coupled with stable non-oil exports. Annually however, oil exports fell from USD 2.6bn in 2Q19-20 as a result of a drop in both oil prices and quantities exported.

Services balance witnessed a slight improvement, to USD 1.0bn in 2Q20-21 from USD 0.9bn in 1Q20-21 as the increase in services receipts offset the increase in payments. The balance is still lower than last year’s level of USD 2.2bn in 2Q19-20.

  • Suez Canal saw a minor improvement in its revenues to USD 1.5bn in 2Q20-21 from USD 1.4bn in 1Q20-21, and remained unchanged from last year’s level.

  • Tourism Revenues registered a mild recovery in 2Q20-21 to USD 1.0bn, up from USD 0.8bn in 1Q20-21, as restrictions on travel started to ease and global tourism started to recover. Revenues are still far from recovering to their pre-covid levels witnessed last year, at USD 3.1bn in 2Q19-20.

Income balance recorded a narrower deficit in 2Q20-21 of USD 2.4bn compared to a deficit of USD 3.1bn in 1Q20-21 as income receipts remained rather unchanged while income payments were reduced to USD 2.4bn in 2Q from USD 3.1bn in 1Q. Income payments fell yoy as well from USD 2.7bn in 2Q19-20 to USD 2.4bn in 2Q20-21, which comes on the back of lower profits from foreign oil firms operating in Egypt after oil prices dropped, as well as lower retained earnings as they were reinvested in the capital of their companies.

Financial account: Inflows improved both quarterly and annually, hitting USD 5.3 bn in 2Q20-21, up from USD 4.0 bn in 1Q20-21 and USD 4.6bn in 2Q19-20. This was made possible through sustained inflows from FDIs as well as FPIs which increased compared to last year’s level although declined QoQ.

  • FDIs rose to USD 1.8 bn in 2Q20-21 from USD 1.6bn in 1Q20-21, although remained lower than last year’s USD 2.6bn. This annual decline came as a result of weaker net inflows in the non-oil sector, which was supported by lower proceeds from selling local entities to non-residents, weaker net inflows for the purposes of capital increase, establishing greenfield projects, and real estate purchases.

  • Bonds: Although net FPIs were weaker QoQ, the portion of these inflows versed into sovereign bonds increased from USD 30 mn in 1Q20-21 to USD 710 mn in 2Q20-21.

Other investments saw inflows of USD 0.7bn in 2Q20-21 compared to large outflows of USD 4.2 bn in 1Q20-21 and a weaker outflow of USD 0.1bn in 2Q19-20. The account’s improvement was made possible as higher net borrowing levels were offset by declining outflows from assets as well as from liabilities.

Negative developments compared to 1Q20-21

Non-oil trade saw a wider deficit of USD 10.4bn in 2Q20-21 compared to a deficit of USD 8.7bn in 1Q20-21 and last year’s deficit of USD 9.8bn. The wider deficit is underpinned by rather stable non-oil exports but higher non-oil imports worth USD 15.1bn in 2Q20-21 compared to last quarter’s bill of USD 13.4 bn and last year’s USD 14.3 bn. The rise in imports was mostly concentrated in imports of medicines, and car accessories.

Oil trade switched to a deficit of USD 0.2bn in 2Q20-21 from a surplus of USD 0.1bn in 1Q20-21. This was made possible by higher oil imports offsetting higher oil exports.

  • Oil Imports rose to USD 2.2 bn in 2Q20-21 from USD 1.5bn in 1Q20-21, although lower than last year’s imports of USD 2.7bn in 2Q19-20. The YoY improvement in the oil imports bill reflects the drop in world prices as hit by the pandemic as well as a decrease in quantities of imported oil products and crude oil.

Balance of Goods & Services Overall it recorded a wider deficit in 2Q20-21 of USD 12.0 bn than it did in 1Q20-21 at a deficit of USD 10.8bn; supported by the widening of the trade deficit, which was not offset by the narrower income & services deficit.

Transfers declined to USD 7.2bn in 2Q20-21 from USD 8.0 bn in 1Q20-21, however, performed better than last year’s USD 6.9bn in 2Q19-20. The QoQ decline reflects lower remittances and outflows in official transfers.

  • Remittances declined QoQ to USD 7.5bn from USD 8.0 bn, hence causing private transfers to decline as well. On an annual basis however, 2Q20-21 saw 8% higher Remittances than 2Q19-20 at USD 7.0bn.

Current Account Deficit Widened significantly to USD 4.8 bn in 2Q20-21 from a deficit of USD 2.8 bn in 1Q20-21, and from last year’s deficit of USD 3.2bn in 2Q19-20. A deterioration caused by weaker transfer inflows and a wider trade deficit which were not offset by the mild improvement in Services balance and the narrower income deficit. The current account deficit now stands at -1.1% of GDP, higher than last quarter’s level of -0.6% of GDP as well as last year’s -0.8% of GDP.

FPI: Despite recording some USD 3.5 bn worth of portfolio inflows in 2Q20-21, it remains lower than last quarter’s peak of USD 6.7bn which was reflecting the recovery of funds after capital outflows earlier in the year. Annually, this level remains higher than the USD 2.3bn outflows recorded in 2Q19-20.

Net borrowing was higher QoQ and YoY, at USD 2.8bn in 2Q20-21, up from USD 2.2 bn in 1Q20-21 and USD -0.4bn in 2Q19-20. Higher borrowing was made through more long-term loans and short-term suppliers credit despite declining long-term suppliers credit.