Egypt’s Economic Reforms and Security Push Pay OffBy
Current account deficit shrank 64% in 1H Fiscal 2017-18
Improvement indicate that reforms are starting to bear fruit
Egypt’s financial dealings with the outside world are quickly becoming more favorable, as an overhaul of the economy and a concerted push to combat terror helped funnel more money into North Africa’s largest economy.
The deficit in the nation’s current account, which includes trade in goods and services as well as financial transfers, narrowed 64 percent to $3.4 billion from July to December 2017, the central bank said on its website. The improvement was mainly driven by a rebound in tourism revenues and transfers from Egyptians abroad, while exports witnessed modest growth.
“This is a positive development, albeit an expected one, because the economic reforms undertaken so far have largely concentrated on monetary and fiscal issues,” said Cairo-based independent economist Reham ElDesoki. “To boost exports further, more focus needs to be directed towards cutting red tape and improving the business environment.”
The figures indicate that Egypt’s economy is starting to reap the benefits of measures launched in November 2016, including the lifting of currency restrictions, raising taxes and cutting fuel subsidies. An expected sweeping win by President Abdel-Fattah El-Sisi in this week’s election -- at least based on initial results - is expected to pave the way for additional fiscal changes in line with the program backed by the International Monetary Fund.
Tourism revenues surged to almost $5 billion from $1.5 billion a year earlier, in a stark reversal of fortune for a key sector battered in the wake of the 2015 bombing of a Russian aircraft that killed all on board. The halving of the Egyptian pound’s value against the U.S. dollar, as a result of the currency float, is also making the nation more competitive destination for visitors.
Not As Rosy
Inflow of net foreign direct investments, however, spotlighted the fickle nature of inflows and spoke to the challenges of creating jobs and boosting productivity. Net FDI dropped to $3.8 billion from $4.3 billion a year earlier, with the oil and gas sector making up the bulk of inflows, according to the central bank.
“Foreign investors need to see actual change in how business is conducted in Egypt before committing large amounts of money into the country,” ElDesoki said. “I don’t expect large improvement on that front before the end of this year, so the reforms taken would take hold on the ground.”
Much of the investments that have come in, however, have been channeled to the debt market and stocks. Net inflows to the capital markets surged to $8 billion from $213 million in the comparative period, the central bank said. The surge was mainly driven by the influx of dollars into high-yielding Treasury bills.
Egypt last year enacted new investment and industrial licensing laws -- measures officials say will boost domestic and foreign business activity in the country. The government also hopes a series of mega-projects -- including the flagship new capital city and an economic zone adjacent to the newly-expanded Suez Canal, will encourage additional investments.