This week several indicators have shown an improvement that the Egyptian economy has not witnessed in the past six years. To start out, the minister of investment announced an expected 26 per cent increase in Foreign Direct Investment (FDI) for fiscal year 2016-17, to reach $8.7 billion from $6.9 billion the previous year. Furthermore, expectations are that FDI will surpass $10 billion in the current fiscal year 2017-18, the minister said. Egypt has not seen FDI close to that figure since 2007, when FDI came at around $12 billion before starting to plummet on the back of the global financial crisis in 2008, and later on the back of the fallout from the January 2011 Revolution. Hopefully the minister's forecasts will come true, especially with measures now in place to make investors' lives easier. The executive regulations of the new investment law, which was ratified in June, should soon be approved by the cabinet, so too an investment map that includes opportunities across Egypt in various sectors, particularly infrastructure, real estate, tourism, energy, industry and waste management. The new investment law offers various incentives as well as tax breaks and rebates. On another positive note, the country's trade balance deficit fell by 46 per cent in the first half of 2017 compared to the year before, to reach $13 billion. This was attributed to an eight per cent increase in exports to register around $11 billion and a 30 per cent drop in imports to $24 billion. This may be one of the main gains of the pound's floatation. Egyptian exports have become more competitive price-wise and the depreciation of the pound has rendered imports more expensive for Egyptians, thus forcing them to seek out locally produced alternatives. It also helped replace imported manufacturing inputs with local ones whenever feasible, as the minister of trade and industry recently said. A third piece of good news was the Egyptian Central Bank's announcement that foreign reserves jumped by $4.73 billion to $36.04 billion at the end of July, even higher than the pre-2011 level which was often used as a benchmark. Since 2011, the drop in hard currency revenues on the back of falling tourism and FDI, as well as the usage of hard currency to support the value of the pound, drained Egypt's reserves. What is to be lamented, however, is that the increase in reserves was mostly due to external indebtedness. The Central Bank recently announced that the country's external debt increased since July 2016 by 32.5 per cent, reaching $73.9 billion in March 2017. In the past nine months, Egypt has sought out foreign funding to help bridge its financing gap. It inked a three-year Extended Fund Facility with the International Monetary Fund (IMF) for $12 billion. It has also negotiated a $3 billion loan from the World Bank and a $1.5 billion loan from the African Development Bank (AFDB). In addition, it received some $6 billion in bilateral funding. And it went to international markets for $7 billion in Eurobonds. The external borrowing figure is expected to balloon further to $102 billion in 2020-21, according to the IMF. The final tranches totalling $1.5 billion from the World Bank and AFDB are expected by the end of the year. Although the government has said that external borrowing provides a cheaper alternative to finance the budget than domestic borrowing, experts worry that it is surpassing safe limits. The only way to allay these fears is economic growth. Once domestic growth increases the size of debt relative to the size of the economy will diminish. What is even better is that hard currency earners such as tourism, investment and exports, fuel this growth. Only then can Egypt limit dependence on borrowing.
