Macro Analysis /
Egypt

Egypt BoP monitor: Jump in financial account offsets dip in current account

  • Balance of Payments records a stable quarterly surplus of US$0.2bn

  • Current account deficit doubles in Q2 19/20, reflecting a wider trade deficit and weaker services

  • Capital and financial surplus soared as FPIs switch from outflows to inflows

Al Ahly Pharos Securities Brokerage
2 April 2020

 Key BoP highlights for 2Q FY19/20 

  • The Balance of Payments keeps a stable quarterly surplus of US$0.2bn. 
  • The Fundamental BoP indicator shows a deficit of US$0.7bn, pressured by the current account deficit. 
  • The Current Account Deficit doubles in Q2 19/20, reflecting a wider trade deficit and a weaker services surplus. 
  • The Trade Deficit widens as higher non-oil imports underpin a wider non-oil deficit, offsetting a stable oil trade deficit. 
  • The Services Balance surplus is cut to half as tourism falls, while Suez Canal revenues remain stable. 
  • Remittances remain stable at their historically regular level of US$7.0bn each quarter. 
  • The income balance deficit narrows down on the back of lower interest payments this quarter. 
  • The Financial Account surplus soars up as FPIs jump and switch from outflows to inflows, while FDIs slowly grow and net borrowing falls. 

Current account deficit doubles in 2Q2019/20 on wider trade deficit and weaker services surplus 

The Current Account Deficit almost doubled to USD3.2bn in 2Q19/20, from USD 1.4 bn in 1Q19/20 and from USD 1.8 bn in 2Q18/19; similarly, annual surplus was reduced to USD 2.1 bn in 2019 from a surplus of USD 5.4 bn in 2018. This deterioration came on the back of a wider Trade deficit and a smaller Service Balance surplus despite a narrower Income Balance deficit. 

The Trade deficit widened by 13% QoQ, to USD 9.9 bn in 2Q19/20, from a deficit of USD 8.8 bn in 1Q19/20 and from USD 9.4bn in 2Q18/19. Underlying this change is the Non-Oil trade deficit widening 20% QoQ, on the back of higher imports and stable exports, to hit USD 9.8 bn in 2Q19/20, from USD 8.2 bn in 1Q19/20 yet falling YoY from USD 10.2 bn in 2Q18/19. The Oil Trade Deficit however is approaching a square balance, with a deficit of USD 0.1 bn in 2Q19/20, from USD 0.6 bn of deficit in 1Q19/20 but still lower than last year’s surplus of USD 0.8 bn in 2Q18/19. Lower oil imports and stable oil exports underpin this change. At the end of 2019, the Trade deficit hit USD 37.5 bn, rather unchanged from 2018. 

Tourism Revenues fell 30% QoQ despite growing 7% YoY, hitting USD 3.1 bn in 2Q19/20, down from USD 4.2 bn in 1Q19/20 yet up from USD 2.9 bn in 2Q18/19. In 2019, USD 13.0 bn were made in tourism revenues, up from USD 11.6 in 2018. 

Remittances remained broadly stable, with a slow rise to USD 7.0 bn in 2Q19/20, compared to USD 6.7 bn in 1Q19/20 and USD 6.1 bn in 2Q18/19. The same applies to its annual level of USD 26.8 bn in 2019 and USD 25.4 bn in 2018. 

Suez Canal Receipts remained stable, slightly rising to USD 1.5 bn in 2Q19/20, from USD 1.3 bn in 1Q19/20 and slightly falling from USD 1.5 bn in 2Q18/19. Similarly, Suez Canal revenues were stable annually, at USD 5.8 bn in 2019 and USD 5.9 bn in 2018. 

Interest payments remained stable QoQ at USD 0.8 bn in 2Q19/20, and 1Q19/20, while slightly growing from USD 0.6 bn in 2Q18/19. 

Capital & financial surplus soared as FPIs switch from outflows to inflows 

The Capital and Financial Account surplus grew almost 4 times, both quarterly and annually; hitting USD 4.6 bn in 2Q19/20, from USD 0.7 bn in 1Q19/20 and from USD 1.84bn in 2Q18/19. This growth is driven by a significant rise in FPI flows while FDIs remained stable. 

FPIs rose drastically and shifted to inflows of USD 2.3 bn in 2Q19/20, from outflows of USD 2.0 bn in 1Q19/20 and outflows of USD 2.7 bn in 2Q18/19. Accordingly, Egypt collected USD 10.4 bn worth of inflows in 2019 compared to USD 1.8 bn worth of outflows in 2018. 

FDIs grew 10% QoQ to USD 2.6 bn in 2Q19/20, from USD 2.4 bn in 1Q19/20 and fell 6% YoY from USD 2.7bn in 2Q18/19. Annually, 2019 saw a total of USD 8.0 bn in FDI flows compared to the USD 6.8 bn in 2018. 

Net Borrowing more than halved QoQ, making outflows of USD 0.4 bn in 2Q19/20, from inflows of USD 3.0 bn in 1Q19/20 and USD 0.1 bn in 2Q18/19. Annually however, net borrowing increased to USD 7.7 in 2019 compared to USD 6.8 bn in 2018. 

Fundamental BoP indicator falls reflecting a wider current account deficit

On aggregate, the Balance of Payments hit a surplus, of a stable magnitude for 3 consecutive quarters, at USD 0.2 bn in 2Q19/20, and in 1Q19/20, and improved compared to a deficit of USD 2.1bn in 2Q18/19. Annually however, the USD 2.1 bn in surplus in 2019 is almost half the USD 5.4 of surplus made in 2018. 

The Fundamental BoP indicator, which focuses on FDIs, FPIs and the current account, drastically fell to a deficit of USD 1.9 bn in 2Q19/20, from a surplus of USD 1.0 bn in 1Q19/20 yet improved YoY from a deficit of USD 4.0 bn in 2Q18/19. Annually, however, it improved to a surplus of USD 4.6 bn in 2019 from a deficit of USD 5.3 bn in 2018. The key account underpinning this change is the FPIs account, soaring up on an annual basis, while the quarterly fall is attributable to the wider current account deficit.