Egypt's overseas transactions during the second half (H2) of 2020 demonstrated the country's resilience and ability to weather the shock caused by the novel coronavirus (COVID-19) pandemic. The balance of payments (BOP) recorded an overall surplus of $1.5bn in H2 of 2020, compared to a deficit of $9bn in the previous half, covering January to June 2020 at the peak of the first wave of the pandemic. This also compared to the surplus of $410.9m in the corresponding period of July to December of the previous fiscal year (FY) 2019/20. The current account deficit rose by 66.9% to $7.6bn against $4.6bn in the corresponding period. This was attributed to the travel restrictions brought about by the pandemic, causing the tourism sector to register only one quarter of the revenues realised in the corresponding previous period. This saw the highest tourism revenues before the coronavirus pandemic, with only $1.8bn earned compared to the previous $7.2bn. The capital and financial account realises a net inflow of approximately $9.2bn. Net inflows channelled into the capital and financial account increased by 75.2% to $9.2bn, against $5.2bn in the corresponding period. This reflects the noticeable improvement in foreign portfolio investment in Egypt, due to the easing in global financial conditions. It also reflects the confidence of foreign investors in the Egyptian economy despite the ongoing global uncertainty caused by the COVID-19 pandemic. The following is a review of the main developments in the BOP performance in H1 of FY 2020/21, relative to the same period of the previous FY 2019/20. The services surplus dropped by 69.9% to post only $1.9bn (compared to $6.3bn), mainly due to the decline in tourism revenues by 75.3%, to record only $1.8bn (against $7.2bn). It was also driven by the contraction in transport receipts by 17.1%, to stand at $3.6bn (against $4.4bn). This was mainly on the back of the fall in the receipts of aviation companies impacted by the pandemic. The non-oil trade deficit widened by 6.6%, or $1.2bn, to post $19.1bn, due to higher non-oil imports of $1.3bn to reach $28.5bn. The rise was concentrated in the imports of medicines and spare parts and accessories for cars. Meanwhile, non-oil exports went up by only $131.5m, registering $9.3bn, mostly exports of gold. The positive factors that helped mitigate the aggravation of the current account deficit, included an increase in workers' remittances by 13.5% to post $15.5bn (compared to $13.7bn). The oil trade deficit improved to record only $54.2m, compared to $733.3m, owing to the decline in oil imports by $2.1bn to record $3.64bn. This reflected the slump in world prices impacted by the COVID-19 pandemic, and the decrease in the quantities imported of oil products and crude oil. There was a $1.5bn decrease in oil exports to $3.59bn as a result of the drop in the exports of crude oil, natural gas and oil products. This was driven by the slump in world prices, on the one hand, and the change in the quantities exported, on the other hand, affected by the decreased exports of crude oil and natural gas. Oil products increased on the back of the upgrading of refineries, representing an added value to the Egyptian economy. The investment income deficit narrowed by 6.0%, or $347.8m, to record $5.4bn compared to the previous $5.8bn. This was mainly as the fall in income paid outpaced that of income earned. The investment income payments declined by $745.3m to register $5.6bn, reflecting the drop in the profits of foreign oil firms operating in Egypt, which were adversely impacted by the plunge in world oil prices. It was also affected by the retained earnings which were reinvested in the capital of existing companies. On the other hand, investment income receipts shrank by $397.5m to record only $123.1m, due to the decrease in interest payments on deposits, and profit repatriation of branches of Egyptian companies abroad. Net inflows of the capital and financial account rose by $3.9bn, to register $9.2bn in H1 of FY 2020/21, compared to $5.2bn in the same period a year earlier. This was the result of the following main developments: The net inflows of portfolio investment in Egypt rose to $10.2bn (against net inflows of $273.6m in the corresponding period). Net flows of foreign direct investment (FDI) to Egypt decreased by 32.3% to post $3.4bn, against $5.0bn, as an outcome of the decline in net inflows for investments in the oil sector, to record $158.8m (against $1.4bn). It was also affected by the decline of $144.7m in net inflows for investments in the non-oil sectors, to register $710.9m. The latter was driven by the decline in the proceeds from selling local entities to non-residents by $60.1m to record $32.7m and an increase in net inflows for capital increases by $46.1m, to register $396.1m. Inflows for establishing greenfield projects decreased by $23.5m, to post only $18.4m, whilst inflows for real estate purchases in Egypt by non-residents declined by $15.0m, to stand at $263.7m. Retained earnings and credit balances surplus decreased by $228.4m, to post $2.5bn, whilst net disbursements of medium- and long-term loans and facilities recorded $4.5bn (against $2.1bn).
