Egypt Current Account Gap Widens; Capital Outflows Increase

Egypt’s current account deficit widened 30 percent to $7.9 billion in the fiscal year that ended in June, and capital outflows surged as investors shunned government debt amid political unrest.

Tourism revenue declined to $9.4 billion from $10.6 billion in the previous year, the central bank said in an e-mailed statement today. Portfolio investment outflows almost doubled to about $5 billion, while foreign direct investment was little changed at $2.1 billion.

Egypt’s economy stalled after the January 2011 uprising that ended Hosni Mubarak’s three decades in power. Foreign reserves have dropped by more than half since then, to $15.1 billion in August, and borrowing costs surged about 50 percent amid persistent clashes between protesters and security forces that left dozens dead. The government is negotiating a $4.8 billion International Monetary Fund loan to help plug the gap.

“A pick up in tourism earnings will help, but high commodity prices and weak European demand are likely to keep the trade deficit wide,” Simon Williams, Dubai-based senior economist at HSBC Middle East Ltd., said by e-mail. “Egypt will likely need access to IMF funds and other concessional capital flows to offset pressure on its external accounts.”

The FDI figure was boosted by France Telecom SA’s purchase in May of additional shares in its unit Egyptian Co. for Mobile Services, in a deal valued at about $2 billion. In the previous three quarters, total foreign investment was $218 million.

Net private transfers in the fiscal year surged 44 percent to $17.8 billion, led by remittances from Egyptians living abroad.

An IMF delegation is due to arrive in Egypt in the second half of this month to resume loan talks, Finance Minister Momtaz el-Saieed said in an interview yesterday.

Egypt’s economy grew by 2.2 percent last fiscal year, el-Saieed said. Prime Minister Hisham Qandil said he is aiming for growth of about twice that pace in the current period.

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