It is not a secret that Egypt is not in its best days economically. Already in case you do not know : Egypt’s Central Bank raised the key interest rate for the first time in 5 years by 1% leading the Egyptian pound to its sharpest drops against the US dollar in five years.
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| Egypt's Central Bank in Downtown Cairo |
It has been a domino effect fall since then.
On 3 April, the latest Central Bank of Egypt “CBE” data showed that for the first time since God’s know when the Egyptian Net Foreign Assets “NFA” turned into negative value.
First of all, what is the meaning of the “Net Foreign Assets”?
Simply, the “Net Foreign Assets” or “NFA” are the banking system assets owed by non-residents minus liabilities.
Changes in their size represent net transactions of the banking system with the foreign sector, including those of the central bank, according to the banks.
Reuters say that any movement could represent changes in import or export flows, foreign portfolio outflows, repayment of foreign debt, changes in the flow of worker remittances or a slowdown in tourism, analysts said.
That's one definition , there is alternative definition that " Net foreign assets (NFA) determine whether a country is a creditor or debtor nation by measuring the difference in its external assets and liabilities." and Negative value means we are debtor nation.
Now according to the CBE’s official data released earlier this week, the NFAs dropped sharply negative in February as it declined by LE 60 billion or USD 3.29 to minus LE 50.3 billion. This was fifth concessive month witnessing this drop.
If my understanding is correct, these were the numbers of February before the sharp drop in the Egyptian pound value in March. Needless to say, the NFA already has its impact on the value of the local currency over time.
Due to the outflow of foreign currency recently , the CBE had to drop the value of Egyptian pound.
This news is ignored in Egyptian mainstream media.
I do not know if the Negative NFA means the Egyptian bonds were sold or what but I know the Egypt government continues issuing bonds.
This week , the Egyptian government issued its first Samurai bonds.
Egypt is the first Middle East to issue that type of bond according to the government which is proud of this achievement. According to what I have learned in University , this means more external debt.
I do not know if the Net Foreign Assets will revive after that shopping spree or acquisitions spree done by the Gulf funds in the past two weeks. UAE , Saudi Arabia and Qatar “yes , Qatar” pledge billions of dollars worth investments in Egypt to help it in this critical phase.
We will the see the numbers of March inshallah.
Anyhow unfortunately we do not have a true serious talk about economy in the media because it is Ramadan and time of TV shows and soap operas !!
In my opinion, Egypt will eventually default on its debts (both local and external). This is inevitable due to the current economic malpractices. I think it is too late to avoid that within 5 years. Revenues from tourism will obviously decline for the foreseeable future due to loss of Russian and Ukrainian tourists. But what the Egyptian government is not anticipating is the decline of remissions of Egyptian expats due to the global inflationary wave that is taking place. The only solution is improving non-petroleum exports, for which the framework is not in place. Macroeconomic indicators are not promising, at least in the short-to-mid term.
ReplyDeleteWhat is happening and where it is leading to economic ruins which includes default was predicted long ago. The only difference is the acceleration from international events. There is no way with the current economic policy that we would avert a default even with better international conditions.
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