Official data indicated that the deficit in the Egyptian balance of payments during the first quarter of the current calendar year reached 7.255 billion dollars, which is the highest historical quarterly deficit in the Egyptian balance of payments, which exceeded the value of the deficit in it during the first quarter of 2011, during the twenty-fifth revolution of January, which amounted to 6.1 billion dollars at the time.
As well as the value of the deficit during the second quarter of 2020, with the peak of the negative effects of the Coronavirus, the disruption of air traffic and tourism, and the decline in exports, which amounted to 3.5 billion dollars at that time, as well as the deficit that he suffered as a result of the repercussions of the global financial crisis.
The value of the deficit in the balance of payments represents the difference between the total foreign exchange resources from all sources of commodity and service exports, labor transfers, aid, loans, and foreign investment of both kinds, and between all payments to the outside world such as commodity and service imports, interest payments from foreign investments, interest payments and foreign debt installments.
Thus, this unprecedented huge deficit was achieved despite the increase in foreign loans by about 12.3 billion dollars during the first quarter of this year, with the large exit of foreign investments in government debt instruments from treasury bills and bonds.
About 14 groups of foreign exchange resources and the corresponding payments are distributed on a number of sub-balances: the trade balance, the service balance, the income balance, the transfers balance, the financial and capital account, in addition to the omission and error account for what is not included in those sub-balances.
Detailed data of the components of the total balance of payments revealed shocking numbers for the majority of its sub-balances. In the trade balance, which measures the difference between the value of merchandise exports and imports, the value of the deficit amounted to $8.9 billion, despite the relative improvement in the value of Egyptian exports with the rise in the price of oil, natural gas and commodity prices internationally. Although imports are restricted through bureaucratic procedures by the Ministries of Finance and Trade, as well as the Central Bank, to reduce their volume.
And here is the balance of service trade, which has been achieving a surplus during the past decades, contributing to it in alleviating the chronic large deficit in merchandise trade. It is also transforming to achieve a deficit of 636 million dollars, with the continued decline in tourism revenues and the return of Umrah trips, despite the improvement in Suez Canal revenues.
To join the deficit in the income balance due to the large interest payments for foreign investments in Egypt at a value of 4.2 billion dollars, and it mitigated the impact of the deficit in the previous three balances: trade, services and income, the surplus achieved by Egyptians’ remittances abroad by about 7.9 billion dollars.
However, the remittances of Egyptians abroad did not absorb the full value of the deficit in the three balances of trade, services and income, so that the current account balance, which guarantees those four balances: commercial, service, income and transfers, achieved a deficit of 5.8 billion dollars, which is also a historically unprecedented number.
Experts usually link the value of the deficit in the balance of current transactions with the size of the dollar gap in the country, as some talk about expecting the dollar gap to reach more than 25 billion dollars during the seasons of the current year, and for this they expect a large size of the loan being negotiated with the International Monetary Fund to fill the bulk of the deficit. That dollar gap.
Over the past years, the Egyptian government has resorted to the last component of the balance of payments, which is related to the financial and capital account, which includes foreign loans, foreign direct investments and their purchases of government debt instruments such as bills, bonds and treasury, and their investments in the Egyptian Stock Exchange, so that the surplus achieved in the financial and capital account exceeds the usual deficit in the balance Ongoing transactions.
It results in a surplus, albeit limited, in the total balance of payments, which the government sings about in the media and refers it in its statements to the economic reform program that took place since late 2016, despite the realization of this limited non-permanent surplus, as a result of external borrowing and selling government debt instruments to foreigners as another form of external borrowing.
However, the financial and investment account in the first quarter of this year achieved a deficit of 609 million dollars, despite the increase in foreign loans during that period by about 12.3 billion dollars, as a result of the intensive exit of foreigners from the Egyptian government debt instruments, after the US Federal Reserve raised interest more than once, and the repercussions of the war Ukrainian and Russian and they sought to find a safe haven for their money.
In addition to a deficit of $854 million over omissions and errors, which resulted in a deficit in the total balance of payments reaching $7.255 billion during the first quarter of last year, a deficit that is expected to continue during the second quarter of this year and even in the following quarters.
In light of the data on the escalation of the deficit in net foreign assets - currencies - in the banking system, until the end of last May, to reach 16.4 billion dollars, as the latest announced data, and the continued decline in foreign exchange reserves in the Central Bank of Egypt during the first half of this year by about 7.6 billion dollars.
The most important question remains, what will the Egyptian authorities do to confront this unprecedented deficit in the balance of payments?
It was usual to resort to borrowing, whether from countries or regional institutions, or in the form of issuing bonds, and maintaining a high interest rate to attract interest trading funds to purchase government debt instruments. Difficult, and even the sovereign sukuk that was prepared to be offered abroad were postponed for the same reason.
The raising of the American, European, and British interest rates and many countries of the world, and the expectation of further raising the American interest rate during the current year, after raising it three times this year so far, has made it difficult to return the hot money currently to buy short-term government debt instruments.
Especially with its negative real return as a result of the inflation rate being higher than the interest rate, as well as the negative future outlook of the economy by one of the international rating agencies, in addition to the exit of foreign investors from the Egyptian Stock Exchange.
For the government to be active in measures to reduce imports to reduce pressure on dollar resources, however, in light of the adoption of Egyptian exports of a large proportion of imported components, import control measures led to a decline in the value of merchandise exports in May of this year by 19% compared to April of the same year, according to Statistics Authority, even less than February and March exports.
The state tended to announce the encouragement of the private sector in response to the request of the International Monetary Fund, as one of the conditions for obtaining the new loan, and preparing some incentives for the private sector to participate in alleviating its burdens. It also announced giving a push to the privatization program and preparing a number of bodies and companies to sell part of their private shares Gulf sovereign funds, in return for the loans they obtained from their countries, in addition to obtaining dollar resources that reduce the severity of the shortage in foreign currencies, which demand increased by importers and speculators after the return of the black market, in anticipation of a new decline in the exchange rate of the Egyptian pound against the dollar, experts agree on Its occurrence, although they differ about its value and the method of achieving it, between the sudden measure, or the gradual reduction that has been going on since last March.
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