Central Bank of Egypt data on inflation at the end of August indicated that it reached 37.4%, and the balance of payments data for the fiscal year 2022-2023 showed the continuation of the financing gap, despite efforts to reduce commodity imports.
One of the most important manifestations of Egypt's financing gap is the data of the Central Bank of Egypt's statistical bulletin in the June issue indicating that the net foreign assets of the banking system are negative by about 745.8 billion pounds (negative 24 billion dollars).
Moody's recently downgraded Egypt's credit rating to CAA1 instead of BBB, weakening its credit position, describing it as high-risk. Morgan Stanley also downgraded its view of Egyptian debt from neutrality to "disfavor." These negative valuations have led to a decline in the value of Egyptian bonds in the international market.
Recently, IMF Managing Director Kristalina Georgieva called on Egypt to accelerate the devaluation of the pound in order to preserve foreign exchange reserves.
This comes at a time of difficult circumstances facing Cairo, which needs to obtain a loan from the Fund of about $ 3 billion, and this will only be done by accepting the terms of the Fund.
Egypt needs these loans to meet its obligations to creditors, and resorting to the international bond market at this time under negative assessments means that the cost of loans will be very high.
Recent data from the Central Bank of Egypt, through the balance of payments for the fiscal year 2022-2023 (the fiscal year in Egypt begins on July 43), showed that the trade deficit narrowed from $ 9.31 billion to $ 1.<> billion.
While this may seem positive at first glance, on the contrary, merchandise imports are still much higher than merchandise exports, especially non-oil ones.
The narrowing of the trade deficit also came through the government's reduction in merchandise imports, which fell to $ 70 billion, from $ 87 billion last year.
However, this reflected negatively on the market of many essential goods that are imported from abroad, whether they are finished goods such as medicines, or production requirements, which reflected on the prices of some commodities, which rose significantly.
Part of the movement of ships and tankers in the Souss Canal (French)
Dependence on rentier revenues
The total rentier sources in the balance of payments items for the fiscal year 2022-2023 amounted to about $ 58.1 billion, including 22 billion remittances of workers abroad, petroleum exports 13.8 billion, tourism sector revenues 13.6 billion, and revenues from the Suez Canal traffic $ 8.7 billion.
This means that rentier revenues represent just over 50 percent of Egypt's total dollar revenues this year, which are about $103 billion.
Egypt's continued dependence on rentier revenues exposes the country to a constant crisis, as evidenced by the remittances of workers abroad, which fell from $31.9 billion last year to $22 billion in 2022-2023.
The same thing happened before with tourism revenues during the coronavirus crisis and the Russian war crisis on Ukraine, where tourism revenues were greatly affected, and that was the case with tourism with every regional or international crisis or unrest.
Bleeding foreign profits
Balance of payments data indicate that there is a clear improvement in the revenues of the tourism sector and the Suez Canal in 2022-2023, as the revenues of the tourism sector reached $ 13.6 billion, an increase of $ 2.9 billion over last year, and the revenues of the Suez Canal reached $ 8.7 billion, an increase of $ 1.8 billion over last year.
On the other hand, we find that the transfer of foreign investors' profits abroad is increasing at large rates at a time when Egypt is suffering from a stifling foreign exchange crisis, as foreign profits reached $ 19.4 billion, up from $ 16.7 billion last year.
The profits of foreign investors transferred abroad have turned into a permanent burden on the Egyptian balance of payments, after it was about $ 7.1 billion in 2018-2019, it rose to $ 19.4 billion in 2022-2023, and it is reported that foreign investors' profits include interest on external debt.
It is noted that foreign direct investment in Egypt has not achieved the desired goal, as more than 50% of the net inflows of foreign investment came from the oil sector with $ 5.7 billion, there is also $ 1.2 billion on the side of privatization, and about $ 553 million from the purchase of real estate for non-resident foreigners.
What Egypt needs from foreign direct investment is to contribute to the industrial and agricultural sectors to achieve high added value, change the structure of GDP, as well as reduce the balance of payments deficit.
Great Crisis Debt
The public debt crisis that Egypt is experiencing is one of the most important reasons for the turmoil of its financial situation, especially since the government has overborrowed in general, and in short-term borrowing in particular, with every 6 months the government finds itself required to repay approximately $ 15 to $ 20 billion.
Egypt's external public debt in March was about $165 billion, and the domestic debt exceeded the EGP 6 trillion barrier (a dollar equals about EGP 31), according to data from the Central Bank of Egypt and the Ministry of Finance.
According to the data of the state budget for the year 2023-2024, the debt interest item is the largest among the rest of the public spending allocations at EGP 1.12 trillion, which is close to double the allocation of public investments (EGP 586 billion).
The state budget is experiencing a chronic deficit crisis due to public debt problems, as the budget deficit has worsened significantly, and the total deficit has moved from 255 billion pounds in 2013-2014 to 824 billion pounds currently, and there is no doubt that the accumulation of the budget deficit over those years has exacerbated the debt crisis, thus increasing its burden of installments and interest.
Limited non-oil merchandise exports
Merchandise exports represent one of the components of the strength of countries' economies because they help them to continue economic activity, provide job opportunities, as well as attract foreign exchange, but Egypt's balance of payments data in the fiscal year 2022-2023 show that the performance of non-oil merchandise exports is about $ 25 billion, which is a modest amount when compared to other countries.
Looking at the high-tech export component of Egypt in 2021, we find that it is only about $ 526 million, which means that the added value of merchandise exports is modest, and it needs to adopt a strategy to promote it during the coming period.
Egypt's chronic problem in its foreign trade, with regard to the non-oil commodity side, remains that its imports are usually greater than double its exports, which we see in the performance of 2022-2023, where non-oil merchandise exports amounted to $ 25 billion, while merchandise imports amounted to $ 57 billion.
Official data show that the poverty rate in Egypt is 29.7% in the fiscal year 2019-2020, but after this date many economic indicators declined, and prices rose significantly, so the poverty rate will rise, and the statistics authority is expected to announce the latest data on poverty on the International Day for Poverty Reduction on October 17, or during the rest of 2023.