Global Investment House- Kuwait- Egypt Economic & Strategic Outlook- Balance Of Payments- The current account surplus declined by 14.8% to reach US$2.9bn during 2004/05. This was on account of 32.2% year-on-year increase in trade deficit coupled with a lower increase of 7.2% in services. The transfers registered a 38% y-o-y increase during 2004/05. The current account surplus was 3.3% of GDP during 2004/2005 compared to 4.3% in 2003/2004. However the current account has been in surplus since 2001/02. This performance of the current account during the past few years has been driven by a significant improvement in the services balance.
The trade deficit of Egypt continued to expand over the years. During the year 2004/05, trade deficit expanded by 32.2% to reach US$10.3bn, which was primarily driven by strong growth in import spending, bolstered by tariff cuts (introduced in late 2004), high oil prices, strengthening economic growth and a depreciation of the US dollar. Increased imports reflect Egypt’s increased appetite for consumption, driven by an expanding base of middle class as well as capacity upgrades in the industrial sector.
The services surplus increased by 7.2% during 2004/05, mainly due to growth in tourism and receipts from Suez Canal. Tourism receipts increased 17% to US$6.4bn in 2004/05, with a 15% y-o-y increase in the number of tourists and a 17% increase in the average number of tourist nights. Tourism receipts, which contribute close to 43% of total service receipts, have risen sharply as the sector has benefited from the fall of the Egyptian pound and also due to unrest experienced in rival regional destinations such as Lebanon, Turkey and Morocco.
The tourism sector continues to perform well despite bomb attacks in popular resorts in recent times. Despite the resilience shown by the sector to terrorism-related incidents, a repetition of such incidents in the short and medium terms could affect the volume and mix of tourist arrivals. Tourism receipts are expected to continue to increase over the next few years on the back of investment in coastal resorts. The government has set a target of 14mn tourists and US$12bn in receipts by 2015, up from 8mn visitors and US$6.4bn in revenue in 2004/05.
Although there was a decline in the current account in 2004/05, the overall balance of payments increased due to a surplus in the financial account. The overall balance of payments registered a surplus of US$4.5bn in 2004/05 compared to a deficit of US$0.16bn in 2003/04. The financial account registered a surplus of US$3.4bn in 2004/05 compared to a deficit of US$5.0bn in 2003/04. This was mainly due to the approx. ten-fold increase in the inflows from foreign direct investments which was US$3.9bn for 2004/05 as compared to US$0.4bn reported in the previous year. Portfolio investments on the other hand registered a surplus of US$0.83bn in 2004/05 compared to a deficit of US$0.23bn in 2003/04. The performance of Cairo Alexandria Stock Exchange (CASE) channeled significant investment into the Egypt. There is an increasing appetite for Egyptian assets by wealthy investors from oil-rich Arab countries.
