Egypt's Current Account Deficit Down By 64% Y-O-Y in H1 2017/18, Driven By Tourism, Remittances

Egypt's current account deficit contracted by 64 percent year-on-year in the first half of fiscal year 2017/18, driven by a rebound in tourism receipts and remittances from Egyptians working abroad, according to a recent report by the Central Bank of Egypt (CBE).

Egypt's current account deficit fell sharply to $3.4 billion in H1 2017/18, which runs between July 2017 and December 2017, from $9.4 billion in the same period the year before, preliminary estimates show.

The CBE said the contraction is largely due to “significant improvement in main sources of gross national income,” as real GDP growth reached 5 percent in 2017, according to the Ministry of Planning preliminary estimates, “the highest full-year growth rate recorded since 2010.”

“The surge in net travel receipts on a year-on-year basis has been the key driver of the compression in the current account deficit,” the CBE said. Net travel receipts recorded $3.8 billion in H1 2017/18, compared with net travel payments of $157.4 million in H1 2016/17.

Remittances were the second most important driver of the contraction of the current account deficit, as net current remittances increased to $13.1 billion in H1 2017/18, up from $10.1 billion in H1 2016/17.

As for net merchandise imports, they contracted by $268.5 million in H1 2017/18 to $18.7 billion, compared with the same period the year before. It is worth noting that non-oil merchandise exports grew by 9.7 percent year-on-year to $8.2 billion in H1 2017/18.

“The increase in non-oil merchandise exports was mainly driven by exports of finished products, including household electrical appliances, phosphate fertilisers, glass, textiles, carpets, and pharmaceutical products,” the statement read.

“Finally, the increase in profits repatriated by foreign companies operating in Egypt largely explains the widening in the deficit of other subaccounts,” the CBE added.

The current account – consisting of trade balance, services balance, investment income balance, and net unrequited current transfers, which includes remittances – is one of two components of the balance of payments (BOP), the second being the capital and financial account.

The overall BOP surplus fell by 20 percent to $5.6 billion in H1 2017/18, down from $7.0 billion in H1 2016/17.

In H1 2017/18, the capital and financial account recorded a net inflow of $10.4 billion, a 44.4 percent decrease, compared to $18.7 billion in H1 2016/17.

As part of the capital and financial account, net Foreign Direct Investment (FDI) in Egypt decreased from $4.3 billion in H1 2016/17 to $3.8 billion (inflows) in H1 2017/18, $2.1 billion of which were in net inflow of oil investments.

Also part of the capital and financial account, portfolio investment in Egypt sharply accelerated, recording a net inflow of $8 billion, up from $212.9 million in the same period last year.

The portfolio investment acceleration was largely due to the rise in foreign investments in Egyptian treasury bills, recording net purchases of $8.1 billion, compared with $686.7 million last year.

Other components of the capital and financial account include net external borrowing of medium-and long-term loans and facilities, and liabilities of the CBE to the external world.

Net external borrowing of medium-and long-term loans and facilities contracted, reaching a net disbursement of $3.5 billion in 1H 2017/18, down from $5.0 billion in the same period last year.

Net change in the liabilities of the CBE to the external world recorded a net external repayment of $3.1 billion in 1H 2017/18, compared with a net disbursement of $8.1 billion in 1H 2016/17.