Saudi Arabia agreed to lend Egypt $20 billion to finance the purchase of oil products over the next five years, according to a report.

 

This was the latest in a series of financial pledges by Saudi Arabia, China and multilateral development banks (MDBs) since December to shore up Egypt’s foreign-exchange reserves, said the Moody's report.

 

The pledges are credit positive for Egypt because they will support the country’s balance of payments, which lately have been under pressure from a widening merchandise trade deficit, weakness in tourism and lower deposit inflows and grants from the Gulf, it said.

 

The report also noted that the recent financing agreements point to two key trends - the donor composition is broadening and second, external financial support is shifting to loans and investment commitments from quasi-sovereign sources from predominantly government grants, resulting in an increase in future repayment obligations.

 

But the risks this entails are somewhat mitigated by Egypt’s low levels of total external debt of 15.4 per cent of GDP at the end of the fiscal year that ended on June 30 and general governmental external debt of 8.5 per cent of GDP as of the same date.

 

Meanwhile, merchandise export revenues have been hit by low oil prices, which declined to $21.9 billion in fiscal 2015 from $26.1 billion in fiscal 2014, driven by a 31 per cent drop in petroleum exports.

 

With imports growing – albeit at a slow pace of only 1.3 per cent – Egypt’s trade balance posted a deficit of $39 billion in fiscal 2015, up from $34.1 billion the year before.

 

The downward trend continued in the first quarter of fiscal 2016, with petroleum exports down 21 per cent from the previous quarter and a wider trade deficit of almost $10 billion versus $9.2 billion in the final quarter of fiscal 2015. With oil prices trending even lower, we expect the trade balance to worsen further.

 

Additionally, weak global trade growth is adversely affecting Suez Canal revenues, which were flat in fiscal 2015 versus a year ago and more than seven per cent lower in the first quarter of fiscal 2016 than a year ago. Egypt’s nascent tourism recovery was dealt a blow in November with the downing of a Russian airliner, which resulted in tourism arrivals falling 37.8 per cent that month versus a year earlier. - TradeArabia News Service