Egypt's balance of payments recorded an overall surplus of $2.2 billion during the period from July to March 2013/2014, compared to a $2.1 billion deficit during the same period a year earlier, according to an official statement issued by the Central Bank of Egypt (CBE) last week. The balance of payments of any country reflects its financial transactions with the rest of the world. When registering a surplus this means that the flow of money, in foreign currency, to the country exceeds the outflow. This could be perceived as a positive sign “if we didn't have a trade balance deficit, which despite improving by a meagre 1.5 per cent during the same period is still as high as $25.2 billion as imports are way higher than exports,” commented Sherif Al-Esseili, Head of Research at Okaz Securities. One source of the perceived balance of payments surplus could be remittances from Egyptian expatriates, which in 2014 were up 22.2 per cent compared to the previous year. This year's remittances are worth some $22 billion, compared to $18 billion last year. According to CBE statistics, the country saw $4.3 billion in remittances in the second quarter of the current fiscal year, which ends in June 2013/14, up from $4.1 billion in the previous quarter. The CBE's statement did not show the exact figure for remittances in the nine months period. Foreign direct investment (FDI) also increased to $4.7 billion in the first nine months of the fiscal year, compared to $3.6 billion in the same period a year earlier. FDI in the third quarter of 2014 jumped 71 per cent from the same period the previous year to reach $1.8 billion. The bulk of the increase is owed to growing investments in the oil sector in addition to some foreign interest in green field projects, according to the CBE statement. The withdrawal of Qatar's deposit at the CBE after its Islamist ally Mohamed Morsi's ouster contributed to the decline in net flows at the CBE by 50 per cent to reach $2biilion. However, this was counterbalanced by the reversal in portfolio investments, that in the stock market, to register a net inflow of $1.2 billion, thanks to the $1billion investments in treasury bonds. Beside remittances and FDI, foreign transfers also include Arab Gulf aid that has supported Egypt in the form of financial support and oil products since last July. Saudi Arabia, Kuwait and the United Arab Emirates have pledged more than $12 billion in aid to Egypt since the ouster of Morsi last summer. Mohamed Abu Basha, an economist at the investment bank EFG-Hermes, told Al-Ahram Weekly that he saw no surprise in the figures revealed by the CBE for the past nine months. He put the January to March quarter surplus down mainly to grants from Gulf Arab states. “It is the same pattern that we have seen over the last three quarters, where fundamentally you have a weak balance of payments but the external balances are supported by Gulf aid,” he explained. While the nature of pending Gulf aid is still unclear, Abu Basha pointed that even if the grants are turned into loans, this would not be a significant development, he said, as they would still be entered as money transferred to Egypt. “The loan interest will be minimal. And like any body with a sound economic policy, the state can easily pay any future loans if the government manages to implement doable economic reforms and achieve political and economic stability,” Abu Basha added. Al-Esseili said that the transformation could pose problems as loans would eventually entail paying interest and a further accumulation of external debt. According to the CBE, domestic public debt has reached 83.3 per cent of GDP, compared to 80.6 per cent in December last year, while the balance of external debt has risen by 5.8 per cent, reaching approximately $45.8 billion at the end of December of 2013, compared to $43.3 billion at the end of June 2013. The CBE referred the rise to the mounting use of loans, deposits and other facilities, as the balance of debt had risen by roughly $437.9 million as a result of higher exchange rates for most currencies being borrowed against the US dollar. It also revealed a slight decrease in the burden of external service debt of $13.8 million, bringing it to $1.6 billion in the first half of the 2013-2014 fiscal year. Earlier this month, King Abdullah Bin Abdul Aziz Al-Saud of Saudi Arabia called for a conference to discuss economic support for Egypt following the inauguration of Abdel-Fattah Al-Sisi as the new president. The balance of payments surplus should be reflected in a substantial decline in the exchange rate that is larger than what the exchange market has been seeing recently. Abu Basha said that the inflow of foreign currency coming into the country did not reach the market directly, however. But it could indirectly impact the exchange rate. “Without the Arab aid, I believe the pound could have deteriorated a lot further than it has,” he said. “The whole economic picture could be changed for the better, and perceived as positive, if FDI increased. It has improved, but it has not reached pre-January Revolution levels yet, though tourism has improved and exports increased. All this could be reflected in the exchange rate, the balance of payments and other aspects,” he concluded.
