Egypt's current account deficit narrowed significantly to $4.67 billion in the second quarter of the 2016/17 fiscal year while the overall balance of payments surged to a $5.13 billion surplus, propelled by a decision to float the currency. Egypt's central bank abandoned its currency peg of 8.8 pounds to the US dollar on November 3, hoping to unlock dollar inflows and stem a black market which diverted hard currency liquidity away from the banking system and stifled investment.
The pound has roughly halved in value since the float, unlocking investment into Egypt's stock exchange, debt market and drawing back expatriate remittances. The move helped to narrow the current account deficit to $4.67 billion in the second quarter from $5.38 billion in the same period the previous year. The trade balance narrowed as the currency depreciation made imports more expensive and exports more competitive abroad. It reached $9.21 billion in the second quarter compared to $9.87 billion in the same period of the previous year.
Suez Canal revenues edged down to $1.21 billion in the second quarter from $1.28 billion in the same period last year. Tourism revenues also fell to $825 million in the second quarter from $981 million in the second quarter of the previous financial year. "This came in the wake of the decision of the liberalisation of the Egyptian pound exchange rate in November 2016... This decision had a positive impact on the BOP components during the period," the central bank said in a statement.
The flotation and subsequent weakening of the pound also helped unlock foreign inflows, significantly boosting the capital account component of the balance of payments. Net foreign direct investment inflows rose to $2.41 billion in the second quarter from $1.76 billion in the same period the previous year. Portfolio investment in Egypt rocketed from a deficit of $180.3 million in the second quarter of the last fiscal year to a surplus of more than $1 billion.
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