Fitch Solutions predicts Egypt's current account deficit to decline to 4.8% of GDP

CAIRO - 24 November 2024: Fitch Solutions has forecasted that Egypt's current account deficit will decrease from 6.8 percent of GDP in the previous fiscal year to 4.8 percent in the current fiscal year, driven by a robust recovery in remittances from Egyptians abroad. 

 

Despite this improvement, the report noted a widening trade deficit and reduced Suez Canal revenues. Looking ahead, the deficit is expected to further narrow to 3.8 percent in the 2025-2026 fiscal year as canal revenues rebound, reflecting expectations of resolving regional conflicts and Red Sea disruptions by then.  

 

According to Fitch Solutions, remittance growth will continue to support the current account in the next fiscal year, although at a slower pace than in 2024-2025.

 

Over the next two years, Egypt is set to repay approximately $15 billion annually in debt, through a combination of debt issuance and foreign direct investments.

 

However, the report warns that risks remain, particularly if non-oil exports fail to meet expectations or if import costs rise at a faster rate.  

 

The report also highlighted concerns about declining foreign direct investment, which could reduce foreign reserves. Portfolio investments, which make up about 80 percent of Egypt’s reserves, are seen as an unreliable funding source. 

 

Fitch Solutions estimates that remittances will increase to $28.7 billion this fiscal year, compared to $21.9 billion in the previous year. Notably, remittances surged from $5 billion in Q3 2023-2024 to $7.5 billion in Q4, marking the highest level since Q4 2021-2022.  

 

Remittance inflows are projected to rise further, bolstered by an economic recovery in Gulf Cooperation Council countries, where many Egyptian expatriates reside. Growth in the region is expected to accelerate from 1.4 percent in 2024 to 4.2 percent in 2025.  

 

Meanwhile, the trade deficit is projected to widen slightly, from $39.6 billion in 2023-2024 to $40.2 billion in the current fiscal year. Non-oil exports are expected to gain from improved competitiveness and a recovery in the manufacturing sector after several quarters of contraction. Recent data for Q4 2023-2024 revealed a notable increase in non-oil exports.  

 

However, higher imports could offset these gains, particularly with increased oil imports due to low production and rising non-oil imports following the easing of restrictions. 

 

Fitch Solutions predicts that import growth will be limited to 5 percent, restrained by declining energy prices and subdued domestic demand, while exports are expected to grow by 9 percent.