Download Egypt

Economic Challenges
for the Trade Finance Market in Egypt
Heike Harmgart
Senior Regional Economist
EBRD
April 23, 2012
Cairo, Egypt
1
© European Bank for Reconstruction and Development 2010 | www.ebrd.com
Egypt: Dire Macroeconomic Outlook
The turmoil in Egypt has had a severe impact on the economy:
• Contraction of GDP by about 0.6 per cent in 2011
– Sharp declines in tourism and industrial production
• Severe capital flight instigates balance of payments difficulties
– Depletion of reserves ($15.1 billion at end-March) to defend currency
– Continued outflow of capital amid political uncertainty
• Fiscal pressures have risen
– Increases in subsidies bill and other social spending
– Cost of government borrowing has increased
• Weaker trade flows and financing in wake of turmoil
Egypt: Growth collapses in 2011
percent, y-o-y, quarterly data
6
5
4
3
2
1
0
-1
-2
-3
-4
2008/09
2009/10
2010/11
2011/12
Egypt: Sharp fall in economic activity; Recovery
pending political stabilization
Tourist Arrivals
Industrial Production
thousands, seasonally adjusted
per cent change, y-o-y, s.a.
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
2007 2008 2009 2010
1400
1200
1000
800
600
400
200
2006 2007 2008 2009 2010 2011 2012
2011
2012
Egypt: Substantial Capital Flight in 2011
Foreign Direct Investment
Foreign Holdings of Treasury Bills
US$ billion
LE billion
60
14
55
12
50
45
10
40
35
8
30
6
25
20
4
15
10
2
5
0
0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11
Dec-10
Apr-11
Aug-11
Dec-11
Egypt: On a more positive note…
Remittances
Suez Canal Receipts
US$ billion
5
US$ million
500
4
450
3
400
2
350
1
300
0
250
Dec-08
03/2008
03/2009
03/2010
03/2011
Sep-09
Jun-10
Mar-11
Dec-11
Egypt: Recent pick up in bank lending
Credit to the Private Sector
percent change, y-o-y
8
6
4
2
0
Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11
Egypt: Reserves depleted to defend currency
Foreign Exchange Reserves
Foreign Exchange Reserves
US$ billion
US$ billion
40
6.1
35
6.0
30
25
5.9
4% depreciation
20
5.8
15
10
5.7
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Jan-11 Apr-11
Jul-11
Oct-11 Jan-12 Apr-12
Egypt: Significant rise in gov’t borrowing costs
percent
14
12
10
Deposit
Lending
3-month T bill
8
6
4
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Egypt: Weak domestic demand subdued inflation
Consumer Prices
percent change, y-o-y
14
Headline
Core
12
10
8
6
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Egypt: Fiscal pressures due to subsidy bill
Breakdown of Expenditures
Fiscal Deficit
per cent of total
per cent of GDP
2011/12 budget
12
10
33%
Subsidies, grants,
and social
benefits
8
6
2006/07 budget
4
2
27%
Subsidies, grants,
and social
benefits
0
2004/05
2006/07
2008/09
2010/11
Egypt: Government Debt—External & Domestic*
per cent of GDP
LE billion
1200
110
External debt (rhs)
Domestic debt (lhs)
% GDP (rhs)
1000
100
90
800
80
600
70
400
60
200
50
0
40
2002/03
2004/05
2006/07
2008/09
2010/11
* Domestic debt excludes borrowing from the Social Insurance Fund for gov’t employees and those from public and private business
Egypt: Current Account and Trade Balances
LE billion
15
10
5
0
-5
-10
Trade Balance
Transfers
Current Account
-15
-20
-25
1999/00
2001/02
2003/04
2005/06
2007/08
2009/10
* Domestic debt excludes borrowing from the Social Insurance Fund for gov’t employees and those from public and private business
Egypt: Main Trading Partners
Imports by Destination
Exports by Destination
per cent of total, Jan-Nov 2011
per cent of total, Jan-Nov 2011
Other-14.3%
Libya-4.7%
Saudi Arabia
4.5%
Other
14.3%
Euro Area
14.5%
Saudi Arabia-6.0%
Euro Area
19.8%
GCC-4.6%
Italy-6.7%
GCC-5.3%
Germany-5.9%
MENA-8.7%
Italy-10.6%
MENA-20.8%
U.S.-11.9%
Turkey-5.1%
China
12.8%
France-5.4%
U.S.-6.5%
Turkey-4.2%
Dev. Asia-10.3%
Dev. Asia-13.6%
Egypt: Macro Impact on Trade Finance
• Turmoil in the past year has had significant impact on
trade flows and trade financing:
– Reduction in overall credit supplied by banks
 Prioritization of certain imports over others (e.g. oil/commodities
over consumer goods)
 Credit crunch faced by SMEs/local companies as banks turn
focus on bigger, well-established entities
 Increase in inflation as imports become more expensive
– Shortening of payment cycles as suppliers no longer comfortable with
extending longer repayment options
Thank you!
Contact details:
Heike Harmgart
[email protected]