The current account deficit (CAD) in Q2 FY22 improved on both annual and quarterly basis, thanks to relative improvements in the trade deficit, a rebound in the services balance, and high remittance inflows. CAD contracted by 22% y/y in Q2 FY22 after expanding by 44% y/y in Q1 FY22, leading to a deficit of USD3.8bn. On a quarterly basis, CAD also declined by 5% q/q, but at a slower pace than the 22% q/q fall in Q1 FY22. The following factors influenced CAD in Q2 FY22:
(1) For the first time since Q1 FY21, the trade deficit fell, albeit marginally. Trade deficit declined by 0.1% y/y on a considerable rise in exports (+78% y/y to USD11.8bn vs. +41% y/y in Q1 FY22). Meanwhile, imports also increased but at a relatively slower pace (+30% y/y vs. +34% y/y in Q1 FY22), although they remain at historic highs of USD22.5bn.
(2) In Q2 FY22, LNG exports staged its greatest recovery. The hydrocarbon trade balance improved to a solid surplus of USD2.2bn from a deficit of USD101mn in Q1 FY22. Hydrocarbon exports set a new historical high of USD5bn (vs. USD2.9bn in Q1 FY22) on higher LNG prices and volumes.
(3) Annual non-hydrocarbon trade deficit growth moderated in Q2 FY22 (+22.6% y/y vs. +26% y/y in Q1 FY22), owing principally to a 46% y/y increase in non-hydrocarbon exports (vs.+27% y/y in Q1 FY22), reaching USD6.8bn. Meanwhile, imports continued to grow at a substantially high rate, increasing by 30% y/y to USD19.6bn. Non-hydrocarbon trade deficit remained at an all-time high of USD12.8bn, driven mainly by higher global commodity prices.
(4) Service surplus grew at a slower pace due to an increase in service payments. Service surplus reached USD2.7bn in Q2 FY22 (vs. USD2.9bn in Q1 FY22 and only USD1mn in Q2 FY21), helped by a strong rebound in the tourism sector, which generated USD3bn (vs. USD2.8bn in Q1 FY22 and only USD987mn in Q2 FY21). Suez Canal revenues remained almost flat q/q but grew 11% y/y to USD1.7bn. Meanwhile, service payment surged by 50% y/y to USD4bn, driven by Egyptians’ pent-up demand for travel.
(5) The deficit in investment income continue to weigh on CAD, growing by 36% y/y in Q2 FY22 vs. 27% y/y in Q1 FY22, driven by a 48% y/y increase in investment income payments, including earnings of foreign corporates in Egypt and interest payments.
(6) Remittances slipped in Q2 FY22, in line with our expectations. Remittances fell by 0.8% y/y to USD7.3bn vs. USD7.5bn in Q2 FY21 and USD8.1bn in Q1 FY22.
(7) As global tightening circumstances forced FPI to report a net outflow for the first time since Q1 FY21, CAD was financed by net borrowing and other investment. Net FPI inflows fell further, with a net outflow of USD6bn compared to a net inflow of USD3.6bn in Q1 FY22. Egypt lost USD3.6bn in capital outflows from the T-bills in Q2 FY22, owing to a major shift in the Fed's monetary stance. Meanwhile, FDI declined by 8.7% y/y to USD1.6bn in Q2 FY22 (42% of CAD), after increasing by 4% y/y to USD1.7bn in Q1 FY22.
Mona Bedeir
Chief Economist
T +202 3300 5722