Balance of accounts gap widens following Egyptian turmoil

Bassem Abo Alabass, Sunday 6 Mar 2011

Deficit of over $3bn by end of March, predicts central bank

(Photo: Reuters)

A report from the Central Bank of Egypt expects the balance of payments to record a deficit of more than $3bn at the end of the third quarter of the current fiscal year, which falls on 31 March.

Egypt’s external transactions achieved an overall surplus of US$571.7m in the Balance of Payments (BOP) in the first half of the 2010/11 financial year (F/Y), against $2.7bn in the corresponding period of the previous F/Y. This is attributed to current events in Egypt and their negative effects upon tourism revenues, toll of exports, remittances from Egyptian workers abroad and foreign investments.

The deficit of the current account has increased by 9.2 per cent, reaching $1.4bn, compared to $1.3 bn over the same period last year.
The report also noted capital and financial accounts registered a net inflow of $2.8bn, against $3.3bn last year.
The trade deficit reached $13.3 bn, up 11.7 per cent during July/December 2010/11 and against $11.9bn the previous year, 
reflecting a rise in both merchandise imports and exports. 
Merchandise imports increased by 10.9 per cent to $26bn, driven by the pick up in oil imports by 33.6 per cent and non-oil imports by 8.5 per cent. Likewise, merchandise exports rose by 10 per cent, thanks to the rise in non-oil exports by 10.8 per cent and the oil imports by 8.9 per cent.
The services surplus shrank by 11.1 per cent to $ 5.6 bn in the first half of FY 2010/11, against $6.3 bn for 2009/10.
Transportation receipts went up by 20.2 per cent, caused by the 10.9 per cent rise in Suez Canal receipts to post $ 2.5 bn, against $2.3bn the previous year.
Conversely, investment income receipts fell by 58.3 per cent to $211.1m, compared with $506.4m a year earlier.
"The expected shortage of the third quarter of the current fiscal year 2010/2011 is exaggerated," said Wael El-Nahas, a financial analyst. "If we did not see exports in this period of this financial year then we also will keep the exports subsidy which reached about $2bn, so the real expected deficit will be about $1bn." 
"If the decline of exports adversely affected our balance of payments, we will find boosting of Egyptian incomes and decreases in prices that will be helpful for citizens," he added.
As for improving foreign currencies supply, El-Nahas believes the government should increase Suez Canal tariffs in line with price jumps in oil, "especially when 98 per cent of ships passing through the canal are tankers".
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