Central Bank of Egypt data rings alarm bells | Articles...

Yesterday, the Central Bank of Egypt announced the results of the balance of payments for the third quarter of last year, with a delay of four months from the date of the end of the period, after the publication interval – years ago – two and a half months, but it is better than the internal public debt data that it has not announced since June 2020 so far, with an interval of 19 months.

As a habit of presenting official data, the Central Bank praised the results of the balance of payments for the third quarter of last year, which represents the first quarter of the current fiscal year 2021/2022, which resulted in a surplus of 311 million dollars, compared to a deficit of 69 million dollars in the corresponding quarter of the previous year. The Central Bank considered that this surplus is a sign of the ability of the Egyptian economy to withstand the negative repercussions of the Corona pandemic.

In the same vein, the media, citing the Central Bank’s press release, praised the increase in most foreign currency resources, as a result of the increase in exports, tourism, foreign direct investment, remittances from Egyptians abroad and the income of the Suez Canal.

And none of them bothered to analyze the announced balance of payments data, which refers to foreign exchange resources from all sectors, and on the other hand, the Egyptian foreign exchange payments to the countries of the world, which the economic community is waiting for to try to identify the conditions of the real economy, in a period in which uncertainty prevailed and the talk returned On the need for a new flotation of the Egyptian pound.

A real deficit of 9.2 billion in a quarter of a year

Indeed, these data were very important, as they revealed serious problems facing the Egyptian economy in the current period, and the first of these problems is that there is no real surplus as a result of an increase in resources over payments, as the Central Bank press release said, as the resources amounting to 34.3 billion dollars included new loans from abroad. At a value of $5.9 billion, it also included resources from sales of government debt instruments worth another $3.56 billion, which is also borrowing.

This means that loans and the so-called portfolio investments amounted to 9.467 billion dollars, which represents 18% of the total resources, while the Central Bank talks about a surplus of 311 million dollars, which means that there is a real deficit between resources and payments from foreign exchange amounted to 9.156 billions of dollars in a quarter of a year only, meaning that in the event of its expected continuation, more borrowing will be needed during the rest of the quarters of the current fiscal year to fill the gap.

The Central Bank’s data, when it stated that the portfolio’s investments for foreigners in Egypt amounted to 3.561 billion dollars, revealed that foreign purchases of government debt instruments are low; It is known that Egypt sold $3 billion in international bonds last September, which means that the rest of the share of sales of government debt instruments to foreigners, of local treasury bills and bonds in Egyptian pounds, amounted to only $561 million in three months, with an average of $187 million per month. .

A low number indicates the impact of those flows on which the Central Bank relies a lot to treat dollar liquidity. More dangerously, the data of foreign purchases of Egyptian treasury bills during the months of October and November, indicated that foreigners sold part of their previous purchases, bringing the value of their exit to about 3.536 billion dollars. within two months.

This happens and US interest rates have not changed yet, so let’s say if they rise during the month of March as expected. As for the position of foreigners’ purchases of treasury bonds in Egyptian pounds, it is unknown because the Central Bank has not published them for years, and the same is true of the Ministry of Finance.

Imports are greater than exports

Returning to the balance of payments data for the third quarter of the fiscal year published yesterday, we find that it is natural for resources to improve due to the different local and international reality during that time period from the comparison period that represents the third quarter of 2020, a period that witnessed the beginnings of the exit from the total ban that It was the second quarter of the year.

This ban affected foreign exchange resources such as exports, tourism, investment and others. As for the third quarter of last year, it came after five seasons of the peak of the closure, and therefore it is normal for foreign exchange resources to improve when the world coexists with the effects of the virus.

But on the other hand, payments also increased, with the rise in food, mineral and energy prices, in addition to the fact that about 60% of Egyptian exports are already imported components, and from here we find that if commodity exports increased in value by about 2.5 billion dollars during the third quarter of the year In the past, the value of imports increased by 5.1 billion dollars in the same period.

The trade deficit rose by about $2.5 billion, reaching more than $11 billion in a quarter of a year, which means that it is expected to reach $44 billion during the fiscal year, and it is one of the biggest factors that pressure the exchange rate and push it to move.

Thus, an increase in the value of imports by 34% represents the most significant source of danger to the Egyptian economy in the current period, as the continuation of the same value of imports amounting to 19.9 billion dollars during the rest of the quarters of the current fiscal year means that the value of imports is expected to reach about 80 billion dollars, which is an expected number in light of the continued The rise in the price of oil, which became around $90 a barrel in late January.

It is expected to continue to rise with the extension of the Houthi threat to the UAE, the third largest producer in OPEC, the Russian-Ukrainian conflict and the possibility that Russia, the second oil producer in the world, will use the energy weapon in response to the expected sanctions on it, and the impact of the differences in Libya on its oil production rates, at a time when Egypt’s oil self-sufficiency rate is reaching About two-thirds of consumption.

Expect the resource gap to continue

As well as the rise in wheat prices due to the Russian-Ukrainian conflict, as both are major producers of wheat and grain, and Egypt is the largest importer of wheat in the world. As well as the transmission of the wave of global inflation to Egypt through imports that cannot be dispensed with, especially investment goods, raw, intermediate and food materials, in addition to the unregistered Egyptian imports that are carried out through smuggling at customs ports, coasts and borders and require managing their value in hard currency.

And it is not only imports that require Egypt to find foreign currencies to buy them, as there are payments of interest on investments that amounted to about 4 billion in a quarter of a year, meaning that they require about 16 billion dollars during the quarters of the fiscal year.

Another danger indicated by the Central Bank data is that the value of loan payments will reach about $ 5 billion, despite Saudi Arabia’s announcement of postponing the payment of its loan installments, which we expect that the UAE and Kuwait have pursued, which means that about $ 20 billion is needed to pay the loan installments.

Thus, it is expected that the huge deficit in the trade balance and in the current transactions balance will continue, which also increased despite the improvement in the surplus of services, as Egyptian exports have not a great ability to grow, and a large part of their increase in the past year was due to the rise in world prices, not due to the increase in export quantities.

Also, despite the improvement in Suez Canal revenues, their relative weight of total revenues is less than 5%, and the same percentage of foreign direct investment. As for tourism, it was affected by the Omicron axis and its rates declined during the last quarter of last year, which means that the gap of resources from foreign currencies continues and the continued pressure on the exchange rate.