Cairo managed to turn around its balance of payments (BOP) in the last financial year, registering the first surplus for many years.
This largely came on the back of the return of foreign portfolio investment and improved export competitiveness since the liberalisation of the currency in November – according to official data released in mid-September.
Foreign direct investment (FDI) in the oil sector also picked up in the wake of government debt repayment and the worldwide improvement in industry confidence.
Interviewed following the figures’ publication, Finance Minister Amr el-Garhy highlighted the growing interest in the Egyptian economy among global investors and revealed plans to return to the international bond market before the end of the year.
The overall BOP moved into a US$13.7 billion surplus in the 2016/17 year to June from a US$2.8 billion deficit the previous year. The report issued by the Central Bank of Egypt noted that both the surge in the capital account surplus and the narrowing of the current account deficit were accounted for by developments since the decision under IMF pressure to float the Egyptian pound last November.
The stand-out figure was the leap in foreign portfolio investments since the currency float, resulting in a net inflow of US$16 billion – compared with a US$1.3 billion net outflow in 2015/16. Overseas purchases of Egyptian treasury bills reached US$10 billion, while two dollar-denominated bond issues during the period attracted foreign investment of US$6.8 billion.
Net foreign investment in the Egyptian Stock Exchange – while more than trebling – remained only US$497.3 million, with Cairo’s long-promised programme of initial public offerings (IPOs) of shares in the plethora of state companies dominating the local economy yet to be implemented.
FDI picked up by a more modest 6.5% to US$13.3 billion to create a net inflow of US$7.9 billion, as a result chiefly of the US$2.3 billion net inflow to the oil sector.
Foreign exchange (FX) reserves have built through the Eurobond issues and disbursements under the IMF’s US$12 billion budgetary support programme agreed shortly after the currency reform. Cairo has thus been repaying arrears accrued to international oil companies (IOCs) during the years of political and economic crisis since 2011, resulting in renewed investment.
The FX cushion reached a new post-revolution record of US$36.1 billion at the end of August and Petroleum & Mineral Resources Minister Tarek el-Molla claimed in mid-September that a recent payment had reduced outstanding IOC arrears to around US$2.3 billion, their lowest since 2013.
Wider foreign and private-sector involvement across economic sectors is also expected to be stimulated by legislation designed to improve the notoriously unwelcoming business climate. A substantially reformed Investment Law was passed by Parliament in May, while the country’s first Bankruptcy Law and an amended Companies Law are due to be put before MPs in the forthcoming session.
The capital and financial account surplus registered an overall leap of 36.8% to US$29 billion.
Speaking shortly after publication of the BOP report, Al-Garhy revealed that the government intended to stage another Eurobond issue before the end of November – ahead of the seasonal slowdown in international market activity – worth around US$1.5 billion, and to borrow a further US$3-4 billion during the first quarter of 2018.
Cairo raised US$4 billion in a heavily oversubscribed triple-tranche bond issue shortly after the IMF deal and returned to the market in May for a further US$3 billion-worth of securities – in both cases with maturities of five, 10 and 30 years.
Despite the brightening economic picture, reluctant resort to the IMF’s assistance was driven by acute fiscal problems from which the country has far from recovered – and the minister’s remarks were delivered in the context of projecting a budget deficit of US$12 billion in the current fiscal year.
Meanwhile, the landmark exchange rate liberalisation also assisted in substantially cutting the current account deficit – by 21.5% to US$15.6 billion. Quarterly data showed the gap widening in the first quarter before narrowing in each of the three quarters ended since the pound’s flotation.
Merchandise exports’ increased competitiveness was reflected in their 15.9% rise to US$21.7 billion, mainly on account of a 16.2% rise in non-oil exports to US$21.7 billion.
The services surplus also improved – by 4.3% to US$6.8 billion – as a result of a reassuring rise in tourism revenues during the second half of the fiscal year. The crucial sector has been badly hit in recent years first by political instability and then by terrorism fears.
Suez Canal receipts – the other main services account component – dipped marginally to US$4.9 billion, with the first full year of operations of the government’s much-hyped “New Suez Canal” expansion project having apparently failed to bear the envisaged fruit.