Despite marginal improvements in international reserves and foreign direct investment and the likely improvement in the balance of payments during the fourth quarter of the 2016 fiscal year, Egypt’s external payments position remains fragile, according to the latest report from Moody’s.
On 3 July, the Central Bank of Egypt (CBE) published a report on Egypt’s balance of payments position for the first three quarters of the fiscal year that ended on 30 June 2016. The report shows that Egypt’s economic position remains fragile due to external vulnerability and remaining structural weakness.
The current account deficit reached $14.5bn, up from $8.3bn the previous year, 6.7% and 5.3% of GDP respectively. The overall balance of payments deficit more than tripled to $3.6bn, up from $1bn.
“Although Egypt is a net oil importer, low oil prices do not benefit the country’s trade balance and have in fact affected oil exports more negatively than imports. Oil exports dropped to $1.1bn as of March 2016 from a peak of $3.6bn in December 2013, whereas oil imports fell to $1.6bn from $3.1bn during the same period,” says Steffen Dyck, VP-Senior Credit Officer at Moody’s and lead sovereign analyst for Egypt.
Remittances from abroad have also fallen considerably as the total level of cash transfers from abroad were only $61mn during the first three quarters of the 2016 fiscal year. Compared to the same period in 2015 of $14.3bn, this represents a drastic fall where private transfers have accounted for $4bn per quarter.
Net foreign direct investment has hovered at $1.4bn per quarter, which represents a significant recovery from 2011, but is down from the initial spike in 2016 of $2.8bn. Total FDI in 2016 currently stands at $5.8bn, up from $5.1bn during the same period last year.
Other investment, predominantly short-term supplier credits and other liabilities, have been rising since late 2014 and contributed $9.7bn during the first three quarters of 2016, sharply up from $3.9bn a year ago. However, this surplus was offset by a surge in net errors and omissions, which rose to a cumulative $3.1bn and can be interpreted as a sign of capital flight.
As a result, Egypt’s net international reserves have remained low, remaining stable at $16.5bn since September 2015 with a slight increase in June to $17.5bn, suggesting a marginal improvement and set to meet the forecast of a 5.2% current account deficit by the end of 2016.