Egypt’s BOP slumps into deficit with a decline of $8.6 billion

Ahmed Feteha, Monday 30 May 2011

Outflow of investments, decline in FDI and tourism income headlined the tremendous increase in BOP deficit

Egypt’s balance of payment (BOP) deficit grew by $8.6 billion in the nine-month period between July 2010 - March 2011 over the previous year, according to the Central Bank of Egypt (CBE).

While Egypt's trade balance is often in deficit, total BOP generally shows a net surplus due to capital inflow to the country through tourism, the Suez Canal and investment.

Deficit reached $5.5 billion compared to a surplus of $3.1 billion in 2009/2010, despite a significant 42 per cent growth in remittances from Egyptians abroad.

The major decline occurred in the period between January and March 2011, as the deficit grew to $6.1 billion, shadowing a surplus of $572 million in the period between July - December 2010.

CBE expects the deficit to stretch over $9 billion in June 2011, concluding the financial year, based on April and May’s readings.

Capital and financial accounts showed the largest decline as net outflows reached $1.8 billion in 2010/2011 compared to a net inflow of $5.2 billion in the previous year. This huge decline is mainly driven by deterioration in investment in financial securities in Egypt, which hit a net outflow of $969 million in 2010/2011 compared to a net inflow of $7.1 billion in 2009/2010.

T-Bills in particular witnessed the largest outflow whereas foreigners sold $4.9 billion worth.

Direct investment in Egypt slumped by 51.8 per cent to reach $2.1 billion as opposed to $4.3 billion the previous period.

Trade balance did not really change, marking a slight deterioration of 0.7 per cent.

Services balance recorded a decline of around $2 billion; mainly attributed to growth in transfers abroad of investment returns by $1.7 billion.

Tourism income overall grew by 15.6 per cent to reach $6.9 billion in the nine-month period. However, the first 3 months of 2011 witnessed a decline of 34 per cent; whereas February and March declined by 59.6 per cent.

On the other hand, the growth in remittances from Egyptians abroad of 42.5 per cent brought in $8.9 billion.

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