The Central Bank of Egypt (CBE) has revealed important developments regarding the status of foreign exchange in the Egyptian market during the post-flotation period.
The CBE said in a report issued last week that the flotation of the pound has contributed to a 10.9% increase of the remittances from Egyptian expats from January 2017 to the end of March, recording about $4.62bn.
Total remittances increased by $964.8m to reach $8bn from November 2016 until March 2017, an increase of 13.8% compared to the period from November 2015 to March 2016.
According to the CBE, foreign investments in Egyptian treasury bills continued their climb, recording net purchases of $3.6bn from January 2017 until March, compared to only $19.2m from January to March 2016.
He added that the period from January 2017 to March witnessed an increase in the proceeds of commodity exports by 29.8%, recording about $5.5bn compared to the same period last year. This increase came as a result of the high competitive advantage of Egyptian export prices following the flotation of the Egyptian pound, as well as the rise in international fuel prices.
Tourism revenues also jumped 128.3%, an increase of $706.2m, from January 2017 until March, to reach about $1.3bn, compared to $550.5m during the same period in 2016, according to the CBE.
On the other hand, payments using electronic payment cards abroad declined by 70.0% from January 2017 until March, compared to the same period of 2016. This period witnessed a decline in the current account deficit by 37.7% for the second consecutive time, while the trade deficit decreased by 8.1%.
The CBE disclosed that foreign direct investment to Egypt increased by 12.1% to record about $11bn from July 2016 until March 2017.
The CBE pointed out that the balance of payments achieved a total surplus of $11bn within nine months, of which $9bn was recorded following the decision to liberate the exchange rate.
In the first nine months of 2016/2017, Egypt’s balance of payments (BOP) achieved a surplus of $11.0bn, of which about $9.0bn were collected in the period immediately following the CBE’s decision to liberate the Egyptian pound exchange rate (in line with a deficit of $3.6bn) in the same period of 2016. This is due to the capital and financial account, which recorded a net inflow of US $ 24.6 billion (against US $14.6 billion) and the current account deficit narrowed to US $ 13.2 billion (from US $15.0 billion).
What follows is a review of the main developments that affected the BOP performance from July 2016 until March 2017.
First: the current account
The current account deficit fell by 12.4% to $13.2bn, from July 2016 until March 2017, down from $15.0bn in the period of comparison.
The deficit narrowed by 37.7%, to stand at $3.5bn (compared to $5.7bn in the same period a year before).
The developments in the current account over the first nine months of 2016/17 are illustrated below, along with the key developments that took place in January 2017 to March, the period in which the decision to liberate the exchange rate began to bear fruit.
The trade deficit narrowed by 9.4% to $27.0bn in July2016 to March 2017 (from $29.8bn) due to the $2.6bn rise in merchandise exports and the $212.7m decline in merchandise imports.
Merchandise export proceeds rose by 19.3% to $16.0bn (from $13.4bn), thanks to the rise in non-oil exports by $2.1bn and oil exports by $445.5m.
In contrast, merchandise imports slowly retreated by 0.5% to $43.0bn (from $43.3bn), owed to the $1.3bn decline in non-oil imports and the $1.1bn rise in oil imports.
In January 2017 to March, the trade deficit declined by 8.1% to $9.2bn (from $10.0bn in the corresponding quarter a year earlier).
The decline was driven by the 29.8% increase in merchandise exports to $5.5bn, due to the competitive advantage of the prices of Egyptian exports in the wake of the decision to liberate the exchange rate and the hike in world oil prices. The oil and non-oil exports also moved up by 58.8% and 19.9% respectively. Concurrently, merchandise imports rose by 3.3% to $14.7bn, mirroring the surge in oil imports by $1.4bn or 87.7%. This increase was, however, mitigated by the decrease in non-oil imports by $1.0bn or 7.7%.
In March 2017, the non-oil merchandise trade balance witnessed an improvement, as the deficit fell to $2.5bn (from $3.4bn a year earlier) down by 24.5%.
The services surplus narrowed by 18.7% in July 2016 to March 2017. This was driven by the retreat in tourism revenues by 12.8%, to $2.8bn (from $3.3bn), as a result of the fall in the number of tourist nights by 25.9%, from 45.1m to 33.4m nights. Tourism revenues noticeably jumped in January 2017 to March by 128.3%, to $1.3bn (above the $550.5m of the same period a year before).
Travel payments abroad fell to only $448.3m in January 2017 to March (from $1.2bn in the period of comparison) because of lower e-card payments abroad, to register as low as $226.7m (against $751.4m). Correspondingly, the travel balance recorded a surplus of $808.4m (moving from a deficit of $641.2m in the same period a year before).
Suez Canal revenues declined by 4.2% to $3.7bn in July 2016 to March 17 (from $3.9bn a year earlier). The decrease was attributed to the decline in net tonnage of transiting vessels by 1.7% and the depreciation in the average value of SDR vis-à-vis the US dollar by 1.6%.
Investment income balance ran a deficit of $3.2bn in the period under review, primarily because investment income payments registered $3.5bn (63.1% of which were transferred by oil and non-oil foreign companies operating in Egypt). Meanwhile, investment income received registered only $305.3m.
Unrequited current transfers (net) Inched up during July / March 2016/2017 by 1.6% to $12.6bn (from $12.4bn), due to the increase in both net private transfers from $12.3bn to $12.5bn and net official transfers from $60.7m to $82.5m.
Egyptian expats’ remittances increased in January 2017 to March by 10.9% to register $4.62bn (compared to $4.17bn in the same period a year earlier). Data also shows that in the wake of the CBE’s decision to liberate the Egyptian pound exchange rate in November 2016, these remittances increased by $964.8m or 13.8% in November 2016 to March 2017, compared to the same period a year earlier, to reach $8.0bn.
Second: capital and financial account
The capital and financial account recorded a net inflow of $24.6bn through July 2016 to March 2017 (against $14.6bn in the corresponding period a year before). It is worth noting that in January 2017 to March, this account recorded a net inflow of $7.0bn (against $8.4bn).
The main developments in the capital and financial account that took place in the first three quarters of 2016/2017, with a special highlight on those witnessed in January 2017 to March, as follows:
- Total inflows of foreign direct investment in Egypt in July 2016 to March 2017 rose by 12.1% to $10.8bn (from $9.6bn in the corresponding period), while total outflows reached $4.2bn (against $3.7bn).
- The net inflow of foreign direct investments (FDIs), accordingly, mounted to $6.6bn (versus $5.9bn), mainly due to the rise in net inflow for oil sector investments by $1.8bn to $3.3bn (from $1.5bn).
- Portfolio investment in Egypt in July 2016 to March 2017 unfolded a net inflow of $7.8bn (against a net outflow of $1.5bn). This was ascribed to the rise in foreigners’ investments in Egyptian treasury bills, recording net purchases of $4.3bn (of which
$3.6bn were made in January 2017 to March). In addition, the bonds offered by the Egyptian government in international markets were in the amount of $3.9bn during the same period.
- In addition, foreigners’ investments on the Egyptian Exchange (EGX) rose in July 2016 to March 2017 to register net purchases of $308.9m (against net sales of $58.6m). On the other hand, the Egyptian authorities made repayments of bonds that had fallen due in the reporting period in the amount of $1.0bn (outflows).
- Medium- and long-term loans and facilities unfolded net disbursements of $5.1bn in July 2016 to March 2017 (against $504.1m).
- Other assets and liabilities (the change in banks’ foreign assets and liabilities, the CBE’s non-reserve foreign assets and foreign liabilities, and the counterpart of some items included in the current account) posted a net inflow of $3.1bn (against $5.0bn).