Egypt’s economic status continues to deteriorate under Abdel Fatah el-Sisi, the military dictator who forcibly removed the nation’s first Democratically elected president from office, Mohammed Morsi, at the point of a gun.
By Ray Hanania
Egypt’s economy continues to plummet according to an assessment released this week by Moody’s Investors Services which monitors, accredits and reports on the financial well-being of governments and corporations.
Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody’s commitment and expertise contributes to transparent and integrated financial markets, protecting the integrity of credit. Our ratings and analysis track debt covering more than 130 countries, 11,000 corporate issuers, 21,000 public finance issuers, 76,000 structured finance obligations.
On 3 July, the Central Bank of Egypt (CBE) published balance-of-payments data for the first three quarters of the fiscal year that ended on 30 June 2016 (1 July 2015 – 31 March 2016), which showed that Egypt’s (B3 stable) balance-of-payments position remains weak, according to a report issued by Steffen Dyck, VP-Senior Credit Officer at Moody’s. Dyck is the lead sovereign analyst for Egypt.
The current account deficit reached $14.5 billion from $8.3 billion the previous year, while the overall balance-of-payments deficit more than tripled to $3.6 billion from $1.0 billion, according to Dyck’s report.
Moody’s says the widening deficit is credit negative because it reflects underlying structural weaknesses and increases external vulnerability risks, according to Dyck.
In addition to the Moody’s rating, independent news reports of Egypt’s crackdown on free speech, business and civil rights seem to aggravate Egypt’s economic circumstances even more.
Much of Egypt’s focus has been away from the nation’s economic circumstances and General el-Sisi has instead focused on building relations with the Government of Israel to satisfy the American Congress in order to not jeopardize more than $1.5 billion in financial aid each year. Almost all of the U.S. funding goes to support Egypt’s military, which is one of the nation’s largest employers.
Although the Egyptian military may have an income source and continued revenues through its subservience to U.S. Foreign policy and support for Israel, the country’s other industries are in a slump and tourism has been dramatically cut because of terrorist attacks against tourists by al-Qaeda and Daesh (ISIS) religious fanatics.
Additionally, Egypt has cracked down on civil liberties and on social media, arresting many individuals for posting comments viewed as negative to Egypt’s current government. The military continues to arrest journalists and recently sentenced several journalists to death in absentia sending an even greater negative signal to the rest of the world about Egypt’s future and el-Sisi’s inability to bring the country under control.
The Moody’s report also notes:
Moody’s estimates that the current account deficit reached a record 6.7% of GDP in the first quarter of calendar year 2016, up from 5.3% a year earlier.
Although Egypt is a net oil importer, low oil prices do not benefit the country’s trade balance and have in fact affected oil exports more negatively than imports. Oil exports dropped to $1.1 billion as of March 2016 from a peak of $3.6 billion in December 2013, whereas oil imports fell to $1.6 billion from $3.1 billion during the same period.
Net official transfers were only $61 million during the first three quarters of fiscal 2016, versus $10.0 billion during the same period in 2014 and $2.6 billion for the comparable 2015 period. While net private transfers have averaged at around $4 billion per quarter, and at $12.4 billion for the period July 2015 to March 2016, they are lower than the $14.3 billion registered during the same period a year ago.
Net foreign direct investment has recovered somewhat since 2011, averaging $1.4 billion per quarter since then, with an increase to $2.8 billion during the first quarter of calendar year 2016.
For the period July 2015 to March 2016, cumulative net FDI inflows reached $5.8 billion, up from $5.1 billion during the same period a year ago.
Net other investment, predominantly short-term supplier credits and other liabilities, have been rising since late 2014 and contributed $9.7 billion during the first three quarters of fiscal 2016, sharply up from $3.9 billion a year ago. However, this surplus was counterbalanced by a surge in net errors and omissions, which rose to a cumulative $3.1 billion and can be interpreted as a sign of capital flight.
Consequently, Egypt’s net international reserves have remained weak, hovering at around $16.5 billion since September 2015 and up until March. However, CBE data for the three months from April to June 2016 indicate a slight increase in net international reserves to about $17.5 billion as of June, which suggests a marginal improvement in Egypt’s overall balance of payments during the fourth quarter of the past fiscal year. This is in line with our forecast for a current account deficit of 5.2% of GDP for fiscal 2016.
However, despite the uptick in net international reserves, and the likely improvement in the balance of payments during the fourth quarter of fiscal 2016, Egypt’s external payments position remains fragile.
For more information vist Moody’s online at www.Moodys.com.
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