Egypt's balance of payments registered an overall surplus of $3.7 billion during the first quarter of fiscal year 2013/14, against a deficit of $518.7 million during the same period a year earlier. The balance of payments record the country's financial relations with the rest of the world as it includes the trade account composed of imports and exports in addition to foreign investments, aid, grants and remittances. Analysts agree that the positive performance during the period, lasting from July to the end of September 2013, was pushed by the flow of Gulf aid to Egypt soon after the ouster of former president Mohamed Morsi in early July. “Although the surplus in the balance of payments is a positive sign, it is not necessarily an indication that the economy is performing better as it was undeniably the Gulf money that caused this shift,” said Khaled Amin, a professor of public policy at the AUC. Three Gulf Arab countries, Saudi Arabia, the United Arab Emirates and Kuwait, have pledged $12 billion in aid to support Egypt's interim government. Other than the Gulf aid, other sources of foreign currency such as remittances and Suez Canal revenues came in at their usual levels without significant increases. “This doesn't reflect an overhaul in economic performance as it is not permanent or stable, and certainly the same situation might not be repeated again next year,” Amin stressed. According to a recent report by the London-based think tank Chatham House on the economic performance of Egypt's interim government, the financial support received from the Gulf countries will allow the country to live through the next few months without facing a balance of payments crisis. However, the report also suggests that the Gulf aid could have a short-lived stability effect on the balance of payments. “The aid tap could be turned off abruptly if oil prices were to fall or if the political mood in Egypt or the Gulf states were to change, and remittances are also vulnerable to the same factors,” it noted. “Without significant inflows of foreign direct investment and a recovery in exports and tourism, Egypt's dependence on Gulf aid and on increased remittances will only grow,” the report said. The inflow of foreign currency into the country should have supported the Egyptian pound against the dollar, but the pound is still sliding and the dollar is rising. Amin attributed this to increases in demand for dollars. “In winter, energy consumption usually increases. Most hard currency goes to plug the deficit in energy consumption and energy subsidies and the purchase of basic food commodities,” he said. Paying government debts and settlements to foreign partners in the oil sector will also eat into the reserves. “All of this puts pressure on the pound,” Amin said. However, the decline in the value of the pound has not made exports more attractive, with the trade account registering a deficit of $ 7.7 billion from $7.8 billion a year before and reflecting a decrease in goods imports by 1.5 per cent to $13.6 billion and a lesser decline of 1.3 per cent in goods exports to $5.9 billion, according to the Central Bank of Egypt (CBE). Hamada Al-Qalioubi, an exporter and former chairman of the Chamber of Textile Industries in the Egyptian Chambers of Commerce, said that the country's exporters were facing major problems. Labour demands for salary rises had meant a growing burden on the private sector, he said. “In certain labour-intensive industries, such as textiles, investors can't afford to increase salaries as this will raise costs making their prices uncompetitive,” he said. Labour protests have also had the effect of suspending production for days or weeks, leading to delays in supply to clients abroad and the loss of market share to other countries. According to Al-Qalioubi, the imports figure could have been fed by the huge imports of steel into the Egyptian market. “Importers have been buying steel, especially Turkish steel, at cheap prices and dumping it on the market, especially after the end of the 10 per cent protective duties,” he said. In November 2012, the government imposed a temporary import duty of 6.8 per cent for seven months on steel, and no decision has yet been taken to end it. Net inflows of foreign direct investments (FDI) increased by seven per cent. However, net inflows for green-field investments decreased by 37 per cent despite the overall FDI seeing a nominal increase to $1.24 billion. The CBE accredited the FDI improvement to the increase in the net inflows for the oil sector by 44.2 per cent to $878.6 million from $609.2 million. The inflow of FDIs requires an increase in inputs to production processes, eventually contributing to an increase in imports and putting further pressure on the pound, Amin commented. HSBC's monthly Purchasing Managers' Index (PMI), which reflects business sentiment in the non-oil industrial sector, states that in November new export orders slightly increased for the first time in a year-and-a-half with demand rising from Morocco, the Gulf countries and the UK, among others. According to the CBE, the marginal step up in tourism and exports were overshadowed by “a dramatic fall of 91.8 per cent in services,” as tourism revenues plummeted by 64.7 per cent to less than $1 billion against $2.6 billion earlier. Tourism, which had been slowly improving from a fall following the 25 January Revolution, took another blow in the first quarter as many countries imposed travel warnings on Egypt amid the turmoil after the toppling of Morsi. The bank's statement showed that the number of tourist nights fell by 57 per cent. Portfolio investments reached a net inflow of $1.3 billion, compared to the $327.1 million outflow of last year. These increases were due to the issuance of Egyptian government bonds to the value of $1 billion.
