BMI: Egypt’s current account deficit to narrow in FY2024/25

BMI, a Fitch Solutions company, expects Egypt’s current account deficit to narrow to 5.7 per cent of GDP ($17.9 billion) in the current fiscal year, compared to 6.8 per cent of GDP ($20.8 billion) last year.

According to BMI’s latest report, remittances from Egyptians working abroad are expected to reach a robust 10 per cent of GDP to $31.5 billion in the 2024/25 year, driven by strong performance in Gulf countries and local initiatives. However, BMI said the positive impact is being offset by several factors.

“We have increased our forecast from USD28.7bn to factor in the strong inflows in Q1 FY2024/25 and local initiatives to encourage Egyptian expatriates to remit money through official channels.” the report read.

“Our bullish outlook for remittances is also based on the strong economic performance in Gulf countries, where a large share of Egyptian expatriates resides.”

Factors Fueling Egypt’s Current Account Deficit

Import Pressures:

Egypt’s trade deficit reached a multi-decade high of $14.1 billion in the first quarter of the 2024/25 year, driven by a 42.3 per cent year-on-year surge in imports to $23 billion, primarily due to eased import restrictions and higher LNG imports. With hydrocarbon imports expected to remain elevated, especially during summer, the hydrocarbon trade deficit will widen further. Meanwhile, non-hydrocarbon exports grew by 17.6 per cent to $7.9 billion, but this increase will not be enough to offset “ballooning import bill.” As a result, Egypt’s trade deficit is forecasted to rise from 12.9 per cent of GDP ($39.6 billion) in the 2023/24 year to 14 per cent of GDP ($44 billion) in the 2024/25 year.

Suez Canal Revenues amid Security Concerns:

BMI projects Suez Canal revenues to decline significantly due to the lingering effects of Red Sea disruptions. Despite a ceasefire in Yemen, BMI still expects Suez Canal receipts to plummet by 40 per cent to $4.0 billion this fiscal year before gradually recovering.

Full Rebound by 2026

For the 2025/26 year, BMI expects Suez Canal revenues to only return to pre-crisis levels.

Tourism Resilience

While trade challenges persist, BMI said “the tourism sector remains a bright spot, as the sector proved to be resilient to geopolitical risk in neighbouring countries,” Receipts rose by 4.3 per cent to $15.0 billion in the 2024/25 year.

Funding Egypt’s External Shortfall

To cover its external financing needs, including $15 billion in annual debt repayments over the next two years, Egypt is relying on a mix of debt issuance, foreign investment, and multilateral funding. BMI said the country successfully issued $2 billion in bonds in January 2024 at a favourable rate, with further issuances planned by mid-2025. Egypt’s International Monetary Fund (IMF) programme and external financial buffers have helped stabilise investor sentiment, reducing the 5-year credit default swap (CDS) to pre-2022 crisis levels.

BMI highlights risks to its forecasts, primarily the possibility of larger deficits due to higher imports or weaker-than-expected exports. Negative investor sentiment and potential portfolio outflows could also negatively impact the Egyptian pound. Conversely, a major investment deal, similar to the Ras El-Hekma project, or a faster-than-expected normalisation of Red Sea shipping could lead to a narrower deficit.

Attribution: Amwal Al Ghad English