The fact that things are better than expected is reason enough to rejoice, reports Niveen Wahish United States Federal Reserve Chairman Ben Bernanke is not alone in his optimism this week about the global economic downturn being nearly over. Egypt too had reason to keep its fingers crossed. A number of reports and figures just out this week give mixed signals. Suez Canal inflows are on a steady rise despite being 21.9 per cent lower in July this year at $382.9 million, compared to $490 million in July 2008. Nonetheless, this remains the highest monthly injection this year. And it shows an increase over June's receipts of $348.2 million. This is an indicator of the recovery of the global economy, said Yomn El-Hamaki, head of the department of economics at Ain Shams University. El-Hamaki added that the relative increase shows there is now higher demand for oil and greater trade activity. In addition, Egypt's minister of economic development reaffirmed that the economy saw a GDP growth of 4.7 per cent in fiscal year (FY) 2008/09. Despite the drop from 7.2 per cent in FY07/08, CI Capital Reseach believe "Egypt is still revealing strong growth potentials -- with an average growth of 4.4 per cent in 2009 well above the IMF's 2.7 per cent expected growth for the region." They estimate that Egypt will manage 4.5 per cent in FY09/10 and will strongly pick up in FY10/11 with a growth of six per cent. On another positive note, Moody's Investors Service has changed its outlook on Egypt's sovereign ratings and ceilings back to stable from negative. This affects Egypt's local and foreign currency government bond ratings, its country ceiling for foreign currency bank deposits and its country ceiling for foreign currency bonds. The credit rating agency maintained its stable outlook on Egypt's banking sector as well. In June 2008 Moody's changed the outlook on Egypt's ratings and country ceilings to negative from stable and lowered the government's local currency bond rating mainly because of concerns over the adverse social and economic consequences of soaring inflation. Moody's said Egypt's economy has been less affected to date by the global economic crisis than many rating peers. It attributed this to Egypt's "moderate level of economic openness, solid external position, well-diversified economy, and stable, if rather underdeveloped, banking system that has been restructured in recent years and has limited foreign exposure." The rating upgrade was "primarily motivated by the easing of inflation in Egypt since its peak in August 2008, the government's efforts to contain fiscal pressures, and the relative resilience displayed by Egypt's economy and banking system in the face of recent global economic turmoil when compared with rating peers," explained Tristan Cooper, Moody's head analyst for Middle East sovereigns, in a statement posted on Moody's website. Further, the rating agency commended the fact that the government's budget deficit in financial year 2008/09 was within the same range as the previous year "despite considerable upward pressure on expenditures, particularly on wages and subsidies, and the implementation of a stimulus package." And despite broad expectations that it will expand in FY2009/10 due to lower tax revenues, Moody's does not expect this "to cause a large jump in the government's debt ratios, assuming that nominal GDP growth stays buoyant. The government does not face difficulties in financing its wide deficit as local banks, its main creditor, have a large appetite for government paper." All in all Moody's announcement was a breath of fresh air, particularly coming on the back of figures released by the Central Bank of Egypt (CBE) showing a deficit of $3.4 billion in Egypt's balance of payments (BoP) for FY2008/ 09. The CBE said the deficit was an outcome of a current account deficit of $4.4 billion. According to Reham El-Desoki, senior economist at Beltone Financial, this is the first time in seven years that such a deficit occurs. In fact last year there was a surplus of $0.9 billion. This year "the widening merchandise trade balance counterbalanced the better than expected performance of services receipts and transfers," El-Desoki said. CBE figures also showed that FDIs reached some $8.1 billion in FY2008/09, a figure which Minister of Investment Mahmoud Mohieldin said was an achievement considering the global slowdown. However, this is a 39 per cent drop from the 2007/08 figure of around $13 billion. According to the CBE, the decline was attributed to lower net Greenfield investments, or capital increases, from $6.4 billion to $2.3 billion and also privatisation proceeds of only $0.3 billion compared to $2.3 billion the previous year. Portfolio investments saw a net outflow of $9.2 billion compared to $1.4 billion during the previous FY. However net direct investments in the petroleum sector increased, reaching $5.4 billion against $4.1 billion. According to CBE figures, merchandise export proceeds declined by $4.2 billion to stand at $25.2 billion. The decline reflected the fall in oil exports by 24 per cent and in non-oil exports by 4.8 per cent. Merchandise import payments declined by 4.6 per cent to $50.3 billion, reflecting a 26.4 per cent drop in oil imports. The services balance fell by 16.5 per cent to $12.5 billion compared to $15.0 billion a year earlier. That was attributed to the decrease in Suez Canal proceeds by 8.4 per cent to $4.7 billion down from $5.2 billion the previous year, and the contraction in tourism revenues by 3.1 per cent to $10.5 billion from $10.8 billion a year earlier. El-Hamaki too was distressed by the deficit in the BoP, considering it "huge". She fears that this could affect the value of the Egyptian pound which in turn would pressure monetary policy and its ability to maintain the value of the currency. Nonetheless, El-Desoki believes that while "reflecting weakness of external demand due to the effect of the global crises, the level of weakness in foreign exchange revenues, imports growth and FDI was better than expected." She estimates the current account balance to remain in deficit in FY2009/2010, possibly "narrowing to $3.5 billion as foreign exchange revenues and transfers improve." Further El-Hamaki hopes the global recovery could help overcome the BoP deficit which she considers "an enormous challenge". Others share El-Hamaki's optimism about a recovery. In fact 474 large firms surveyed by the Egyptian Centre for Economic Studies (ECES) for its biannual Business Barometer said their expectations regarding overall economic growth are positive compared to the previous issue in January. In all 82 per cent of the firms surveyed anticipate stable or higher economic growth during the second half of 2009. As for the first six months of 2009, the Barometer showed that according to the Ministry of State for Economic Development, all sectors have been negatively affected by the global crisis with the exception of two sectors that remained resilient, namely, extractive industries and communications. The Barometer showed that the percentage of firms indicating a decrease in economic growth was highest in the tourism sector, while slightly fewer firms in manufacturing, construction, transport, communications and financial services reported a slowdown in economic growth. Still the firms have expressed favourable expectations about their own production during the second half of 2009. A total of 60 per cent of the firms expect higher production levels, while only 15 per cent of the firms surveyed expect their production to drop during the second half of 2009 compared to 38 per cent, during the first six months of 2009. In addition, 59 per cent of those surveyed also foresee higher domestic sales. And only 16 per cent expect lower domestic sales during the second half of 2009. Similarly 57 per cent of the companies expected higher international sales. Only 15 per cent expect lower international sales during the upcoming period, compared to 42 per cent during the first six months of 2009.
