Egypt’s deficit stretched by high imports and regional tension
Egypt’s current account deficit more than doubled in the first quarter of the current fiscal year and the gap is expected to widen further, a Kuwaiti bank says.
Key factors for the massive deficit include a surge in imports and lower Suez Canal revenues due to regional tensions, National Bank of Kuwait (NBK) said in a study on Tuesday.
Citing Egyptian government figures, the report said the current account deficit shot up to nearly $6 billion in the first quarter of the fiscal year 2024-2025 (July-September) from around $2.8 billion in the same period of the previous fiscal year.
This was mainly driven by a large increase in imports to $23 billion from $16 billion a year ago. This was on the back of higher oil and gas imports – up to $5.4 billion from $2.9 billion – and non-energy imports that soared by 30 percent to $17.7 billion.
“The current account deficit will continue to widen as imports grow and Suez Canal revenues remain subdued,” NBK said.
“On the positive side, non-energy exports increased by 18 percent and remittances almost doubled to $8.3 billion in the same quarter.”
The report showed that Suez Canal revenues plunged to just below $1 billion from $2.4 billion in the previous year as geopolitical tensions continued to discourage Red Sea trade flows.
NBK supported government forecasts for 4 percent GDP growth during fiscal 2024-2025, which ends on June 30.
“We expect growth to accelerate in Q2 towards the 3.5-4.0 percent range and reach 4 percent for the full year, a substantial rise on the 2.4 percent in the previous fiscal year,” it said.
“The pick-up in economic growth is also likely to spur import increases. We reiterate our view that it is critical to maintain a flexible exchange rate to limit the ballooning of the current account deficit,” NBK added.
Last week, Egypt’s Planning, Economic Development and International Cooperation Minister Rania Al-Mashat said GDP would grow by around 4 percent thanks to heavy investments in the previous fiscal year. She said GDP would expand despite “economic challenges”.
The International Monetary Fund on March 11 completed its fourth review of the Extended Fund Facility Arrangement (EFF), unlocking a further $1.2 billion in financing and bringing total withdrawals under the $8 billion EFF to $3.2 billion.
The IMF also approved access to $1.3 billion under the Resilience and Sustainability Facility, but re-stressed the need for further “structural reforms related to divestment, a more level playing field, governance and transparency.”