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CBE reveals Egypt’s economy external position

Foreign debt reached 35.1% of GDP at end December 2018, compared to 61.4% of GDP in European coutnries, EMs, and 41.9% in Commonwealth countries

The Central Bank of Egypt (CBE) issued the External Position of the Egyptian Economy Report. The Report tracks, on a quarterly basis, the international transactions that the Egyptian economy conducts with the rest of the world. It highlighted that Egypt’s total external debt has reached 35.1% of GDP at the end of December 2018.

The report indicates that, Egypt’s external debt remains within safe limits, in line with international standards. CBE pointed out that the average external debt in the European countries, and emerging markets (EMs) stands at 61.4% of GDP, while the ratio drops to an average of 41.9% of GDP in the Commonwealth member countries.

Moreover, the CBE disclosed that the foreign debt is due to be paid in the second half (H2) of 2019 will reach about $14.5bn, $1.8bn of which are debt interest. The remaining balances include premiums to the Paris Club countries, a number of international institutions, and a number of countries, including Kuwait, Saudi Arabia, and the UAE.

However, the report did not disclose whether there were any agreements with these creditors to re-schedule or postpone the debt payment.

CBE’s report relies, for this purpose, on the national statistics that are regularly compiled in line with the IMF’s  Special Data Dissemination Standard (SDDS) prescriptions.

“Enthused by the CBE’s keenness to enhance its disclosure, transparency and communication policy, the report is meant to serve several functions. Generally, it spreads, to a broad array of readers, knowledge of Egypt’s external accounts including the balance of payments, external debt, international investment position and external liquidity,” the report noted.

It added that the report monitors key external sector performance indicators of the economy in order to identify areas of policy needs, pointing out that the information revealed in this report has also significant implications for decision-making, investment climate, doing-business environment and sovereign credit ratings.

Furthermore, the CBE noted that the liberalisation of the exchange rate regime by the CBE on November 2016 led to bolstering confidence in the Egyptian economy, achieving monetary stability, and the steady accumulation of foreign currency reserves.

Consequently, On December 2018, the CBE terminated the forex repatriation mechanism for any new foreign currency portfolio investments.

Daily News Egypt took a dive into the External Position of the Egyptian Economy Report, to analyse the country’s external debt, balance of payment, and external liquidity.

External Debt

Egypt’s external debt recorded $96.6bn at end of December 2018, marking an increase of 4.3% compared to June 2018.

According to the report, this increase came as a result of the rise in net disbursements of loans and facilities by $4.3bn, while most currencies of borrowing depreciated against the US dollar by $0.4bn.

On the other hand, long-term external debt accounted for $70.6bn or 73% of the country’s total external debt. Whereas medium-term external debt reached $15.7bn or 16.3%, while short-term external debt accounted for $10.3bn or 10.7%.

In terms of residual maturity, short-term debt accounted for 25.8% of the total external debt at end December 2018, compared to 10.7% classified by original maturity.

Meanwhile, medium and long-term external debt represented 74.2% of the total debt, in comparison to 89.3% by original maturity.

Breakdown by debt category

The report indicates that medium-and long-term external debt increased by about $6bn to reach $86.3bn (89.3 % of total debt) at end of December 2018, marking an increase of 7.4% compared to June 2018.

CBE attributes the increase to the re-purchase Agreements (Repo), which recorded $3.8bn (3.9 % of total debt) at end of December 2018, as well as other bilateral debt that amounted to about $9bn (9.3% of total debt), up by 17.6% compared to June 2018.

In the same time, buyers’ & suppliers’ credit reached about $9.2bn (9.6 % of total debt), increasing by 9.6%.

While, multilateral institutions’ debt reached about $29bn, accounting for 30% of total debt, and up by 2%.

Moreover, rescheduled bilateral debt reached about $3.4bn (3.6% of total debt), down by 8.4%.

In regards to bonds issued abroad (non-resident holdings), it reached about $14bn (14.4% of total debt), down by 2.1%, according to the report. These include about $0.9bn of sovereign bonds issued in April 2010 and due in 2020 and 2040; about $11bn of eurobonds issued in June 2015 (due in 2025), January and May 2017 (due in 2022/2027/ 2047), and February 2018  due in 2023/2028/2048) in addition to around $2.1bn of Eurobonds issued in April 2018 and are due in 2026 and 2030.

The report added that non-guaranteed debt of the private sector registered $0.5bn (about 0.5% of total debt), down by 3.1%.

While, the long-term deposits that have been placed at the CBE by some Arab countries remained at $17.4bn (18% of total debt).

On the other hand, the short-term external debt decreased by about $1.9bn to about $10.3bn or 10.7% of total debt. Its ratio to net international reserves decreased to 24.3% at end of December 2018 against 27.8% at end of June 2018.

The currency composition of external debt indicates that the US dollar is the main borrowing currency, accounting for $61.6bn of the total amount.

The US dollar-denominated debt includes outstanding obligations to creditors other than the USA, including the IMF, African Development Bank (AfDB), and the International Bank for Reconstruction and Development (IBRD).

Other foreign currencies debt accounted for $33bn, including the Euro as the runner-up ($14.2bn), followed by the Special Drawing Rights – supplementary foreign-exchange reserve assets defined and maintained by the IMF – ($10.4bn), the Chinese yuan ($3.6bn), the Kuwaiti dinar ($2.5bn), and the Japanese yen ($2.3bn), and other currencies ($2bn).

The CBE noted that breakdown by creditor indicates that $29bn was owed to multilateral institution, namely IBRD $9.3bn, IMF $9.2bn, ADF & AfDB $3bn, and EIB $2.7bn.

Another $23.1bn was owed to Arab countries, namely Saudi Arabia, UAE, and Kuwait. Meanwhile, $9.3bn came from five members of Paris Club countries; namely Germany ($3.2bn), Japan ($2.3bn), France ($1.5bn), USA ($1.3bn), and UK ($1bn). In addition, $6.5bn of the total debt was owed to China, the report indicated.

Moreover, in terms of Egypt’s external debt by debtor, the government accounts for 49.8% of the total foreign debt, as its debts rose by about $400m last year to reach $48.1bn. While the CBE’s debt rose to $28.2bn, accounting for 29.2% of the total external debt, and banks’ external debt increased by about $1.6bn to record $7.7bn. Other sectors’ debt increased by about $0.2bn to $12.6bn.

External debt service

CBE explained that debt service reached $7.3bn during the period from July 2018 to December 2018 down from $8.6bn during July 2017 to December 2017.

This reduction was mainly due to the decrease in installments repayment by about $1.6bn to record $5.9bn mainly attributed to the repayment of short-term debt in the form of repurchase agreements (Repo) and banks’ obligations.

On the other hand, paid interest inched up slightly by about $0.4bn to reach $1.4bn as a result of the increase in interest paid on multilateral loans and Euro-bond.

External debt indicators remain manageable

However, the CBE noted that Egypt’s debt remains within manageable limits.

“Based on IMF classification, comparing Egypt’s key debt indicators with those of other regional country groups shows that Egypt’s debt stock to GDP represented 35.1% at end of December 2018 (61.4 % for Emerging and Developing Europe and 41.9 % for the Commonwealth).” the report added.

Egypt’s short-term external debt ratio to total external debt at end of December 2018 represented 10.7% ( while the ratio stands at 20.5% for Emerging and Developing Europe, and 8.4% for the Commonwealth),” the CBE explained.

Egypt’s debt-service ratio registered 23.2 % during the year ended in December 2018 (44.4 % for Emerging and Developing Europe, and 29.0 % for the Commonwealth).

US dollar appreciated against EGP  from July to December 2018

As for the exchange rate, the CBE noted that during July to December 2018, the weighted average of the US dollar in the Egyptian inter-bank market appreciated by 0.1% to EGP 17.9136 at end of December 2018, (against EGP 17.8878 at end of June 2018).

On the market end, the buying price in the foreign exchange market, the Swiss franc rose by 1.6 %, Japanese yen by 0.5%, US dollar, Saudi riyal, and UAE dirham increased by 0.2% each. On the other hand, Chinese yuan decreased by 3.5 %, pound Sterling by 1.9 %, Euro by 0.9%, and Kuwaiti Dinar by 0.1%.

BOP deficit recorded $1.8bn  in end December

The CBE said that Egypt’s transactions with the external world recorded an overall BOP deficit of about $1.8bn during the period July to December 2018/2019 (against a surplus of about $5.6bn).

The report indicates that the current account deficit increased to about $3.9bn against about $3.5bn, adding that the capital and financial account recorded a net inflow of about $1.8bn against about $10.4bn).

Moreover, the CBE attributed the increase in the current account deficit to several factors, namely net unrequited current transfers which declined by 7.6% to about $12bn versus about $12.9bn; the income balance deficit surged by 25.6 %, recording about $3.8bn against about $3bn; the trade deficit increased by about $503.7m recording about $19.2bn; the service balance surplus scaled up to about $7.3bn against about $5.3bn.

Trade volume, deficit  increased

The CBE said that trade volume increased by 11.5%, to reach $47.8bn (17.3 % of GDP) during the period from July to December 2018.

The trade deficit increased by $503.7m to record $19.3bn (7.0 % of GDP) due to merchandise exports increasing by 18.4% to reach $14.3bn, reflecting mainly the increase in oil exports by 57.6%, to reach $6bn 42.1% of total exports; and also non-oil exports by 0.3% to reach $8.3bn (57.9% of total exports).

As a result, the exports to imports ratio mounted to 42.6%, from 39.1%, the report indicates.

Merchandise imports increased by 8.8% to reach $33.5bn due to the increase in non-oil imports by 11.5% to $27.7bn (82.5% of total imports), and the decrease in oil imports by 2.1% to reach $5.8bn (17.5% of total imports), according to the report.

The CBE noted that Egypt’s main trade partners in terms of exports were Italy, USA, UAE, UK, India, Germany, Switzerland, Saudi Arabia, and Malta. These countries combined, accounted for some 51.1% of total exports.

In regards to imports, Egypt’s main trading partners were China, Saudi Arabia, Russia, UAE, USA, Germany, Turkey, Switzerland, France, and Italy. These countries combined, accounted for some 50.1 % of total imports.

Services surplus surged to $7.3bn backed by tourism revenues

Services surplus surged by 36.7% to about $7.3bn, up from $5.3bn, as the increase in services receipts outpaced that in services payments.

The CBE explained that services receipts increased by 19.4% to some $12.8bn, driven by the increase in all of its items.

It noted that tourism revenues (representing 52.9% of services receipts) increased by 36.4% to about $6.8bn (against about $5bn), driven by the hike in the number of tourist nights to 71 million nights (up from 52.1million nights).

Moreover, transportation receipts (representing 35% of services receipts) increased by 3.1% to record $4.5bn (against some $4.4bn), due to the increase in Suez Canal dues by 5.8% to about $2.9bn (against some $2.8bn). This came as a result of the rise in net tonnage by 8.6 %, and SDR depreciation against the US dollar by 1.2 %. In addition, the receipts of Egyptian aviation companies increased.

In addition, other services receipts increased by 10.2% to about $1.3bn (against about $1.1bn), due to the increase in the receipts of communication services, advertising & market research services, other services, entertainment and cultural services and film rentals.

Government services receipts increased by 8.9% to $293.7m (against $269.7m), due to the increase in other governmental receipts.

The report added that services payments increased by 2.5%, to about $5.6bn (against about $5.4bn), driven by the increase in most of its items; where other services payments increased by 16.6% to about $3bn (against about $2.6bn), driven by the increase in amounts transferred abroad by foreign petroleum companies, legal and consulting fees, insurance fees, and the expenses of communication services.

While, travel payments increased by 18.5% to about $1.4bn (against about $1.2bn), due to the increase in e-card payments abroad, expenses of tourism & medical care, and expenses of travel agencies and hotels.

Moreover, transportation payments increased by 17.8%, to $864.6m (against $733.9m), due to the rise in the amounts transferred by foreign navigation companies.

On the other hand, CBE said, government services payments fell by 63.8% to $358.4m (against $989.1m), reflecting the decline in other governmental expenses, and the salaries of governmental employees seconded abroad.

Investment income balance deficit registered at $3.8bn

CBE’s report noted that investment income balance ran a deficit of about $3.8bn (against $3bn), due to the rise in investment income payments by $852.1m to register $4.3bn.

This was mainly driven by the increase in profit transfers by foreign petroleum companies, in addition to interest payments on external debt (representing 49.2% and 25.0%, respectively, of total investment income payments).

On the other hand, the report pointed out that investment income receipts went up to $486.9m (from $412.7m), as a result of the rise in interest on Egyptians’ deposits held abroad, and profits from branches abroad.

While, net unrequited current transfers declined by 7.6% to about $12bn, down from about $12.9bn, mainly due to the decline in net private transfers from about $12.9bn to about $11.8bn, driven by the  decline in workers’ remittances by 6.8%, according the report.

The CBE noted that this came despite the increase in net official transfers to $163.5m against $68.3m.

Capital and financial account recorded $1.8bn

The report added that the capital and financial account recorded a net inflow of about $1.8bn in the period from July to December 2018, as an outcome of total FDI inflows registering about $6.60bn (against $6.57bn), while total outflows posting $3.8bn (against $2.8bn). Accordingly, net FDI in Egypt amounted to $2.8bn due to the net inflows for oil sector by $1.5bn.

Moreover, the CBE said that the sectorial breakdown of total FDI inflows shows that the oil and gas sector has the biggest share (70.6%). As for the other sectors, the majority of FDI went to the services sectors, where the real estate sector’s share posted 8.8%, other services sectors 3.4%, the financial sector 1.9%, the communication and information technology 1.1%, and tourism sector 0.5%.

The share of the manufacturing sector reached 7.1%, the construction sector 2.3%, the agricultural sector 0.6%, and the remaining portion was acquired by undistributed sectors, according to the report.

On the other hand, portfolio investment in Egypt registered a net outflow of $5.9bn versus a net inflow of $8bn. According to the CBE, this was mainly due to the fact that foreigners’ investments in Egyptian T-Bills reversed to net sales of $5.5bn from net purchases of $8.1bn.

Medium- and long-term loans & facilities recorded net disbursements of $872.3m (against about $3.5bn).

“This was due to the retreat in disbursements of medium- and long-term loans and facilities to $2.2bn from $4.7bn, while total repayments increased to $1.3bn from $1.2bn,” the CBE said.

It added that short-term suppliers’ credit realized net disbursements of $199m against net disbursements of about $1.1bn.

Other assets and liabilities achieved a net inflow of about $4.1bn against a net outflow of about $5.7bn, on the back of the net change in the liabilities of the CBE to the external world, to post a net disbursement of about $1.8bn against a net repayment of about $3.1bn.

IIP recorded $155.6bn net external liabilities at end December 2018

Egypt’s International Investment Position (IIP) at end of December 2018 recorded net external liabilities (assets minus liabilities) of about $155.6bn up by 5.6%, compared to $147.3bn at end of June 2018.

The decrease in negative net IIP data came as a result of the decrease in Egypt’s total assets and the increase in Egypt’s total liabilities compared to the position at end of June 2018, according to the CBE.

Assets and Liabilities by Component:

Assets decreased by 9.2% to reach about $71.1bn at end of December 2018, from about $78.2bn at the end of June 2018, mainly due to portfolio investments abroad decreasing by 35% to about $0.9bn; other investment assets decreasing by about 20%, to reach about $20.6bn; and reserve assets decreasing by 3.9% to about $41.8bn.

“However, foreign direct investments increased by 2.4% to about $7.8bn,” the CBE stressed, adding that “Liabilities increased by 0.5% to about $226.7bn at end of December 2018, from about $225.5bn at end of June 2018.”

The report attributed the increase to the other investment liabilities, which increased by 5.5% to about $82.6bn; FDI in Egypt increased by 2.5% to about $116.4bn; while portfolio investment in Egypt decreased by 17.6% to about $27.7bn.

The report added that Egypt’s negative net IIP to GDP at end of December 2018 decreased to about 56.5%, from about 58.9% at end of June 2018, noting that assets to liabilities decreased to about 31.4% at end of December 2018, from about 34.7% at end of June 2018.

External liquidity improves

During July/December 2018/2019, Net International Reserves (NIR) decreased by $1.7bn against an increase by $5.7bn in the corresponding period a year earlier, to reach $42.6bn, thus covering 7.6 months of merchandise imports at end of December 2018.

The CBE explained that the decrease was an outcome of the decline in SDRs by about $2.1bn and the increase of foreign currencies by $0.3bn and of gold by about $0.1bn.

During the report’s preparation, NIR reached $44.1bn at end of March 2019, the CBE noted.

It added that Net Foreign Assets of Banks (NFA) decreased by $6.8bn during the period spanning from July to December 2018 (against a rise of around $0.03bn in the corresponding period a year earlier).

On the other hand, foreign currency deposits with banks increased by 3.5% during the period concerned, reaching $41.6bn at end of December 2018.

“Likewise, local currency deposits increased by 6.3 %. As such, the ratio of foreign currency deposits to total deposits made up 23.3 % at end of December 2018,” the report read.

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