МІНІСТЕРСТВО ОСВІТИ І НАУКИ УКРАЇНИ

ОДЕСЬКИЙ НАЦІОНАЛЬНИЙ УНІВЕРСИТЕТ ІМЕНІ І. І. МЕЧНИКОВА

ФАКУЛЬТЕТ МІЖНАРОДНИХ ВІДНОСИН, ПОЛІТОЛОГІЇ ТА
СОЦІОЛОГІЇ
КАФЕДРА СВІТОВОГО ГОСПОДАРСТВА І МІЖНАРОДНИХ
ЕКОНОМІЧНИХ ВІДНОСИН

тема: egypt's international balance of payments analysis(2018-2022)

Студента 3 курсу
Спеціальності 292 «Міжнародні
економічні відносини»
Хуан Цзібінь

м. Одеса – 2023 рік

Introduction
 Egypt's balance of payments situation has profound consequences for its
economy. A balance of payments surplus means that the country's exports exceed
imports, which helps to increase foreign exchange reserves and support domestic
economic development; however, a deficit may lead to foreign exchange losses and
economic instability, increase fiscal pressure, and affect the stability of the
country's economy. Therefore, maintaining a sound balance of payments is crucial
to Egypt's economic stability and development.

This article is dedicated to analyzing Egypt's balance of payments situation

in order to identify the main trends and dynamics in its international socio-
economic relations. The study examines how some major factors in the balance of
payments, such as exchange rate depreciation, fiscal and monetary policy balance,
corruption and foreign investment, affect the balance of payments. By studying
Egypt's balance of payments, you can learn how to balance international trade,
ensure economic sustainability, and take measures to deal with possible deficit
risks.

Analysis of articles
To analyze the articles related to the balance of payments, it is suggested to
consider the article, its named: «Effect of the Egyptian pound exchange rate
liberation on the prices of some food commodities»(2018). The most important
findings of the study are that great percentage of the prices of agricultural
commodities soared in prior to the central bank decision to liberate the exchange
rate.The study indicated as well that the high prices of food commodities in the
consumption markets are not only attributed to the exchange rate liberation but to
other factors as well like the great size of marketing margins. As to the needs of
agricultural production, the exchange rate liberation increased their prices. Thus,
there is an increase in the Feddan production cost and the farming prices Finally,
the study recommended that it is necessary for the state to adopt the decision of
farmer support particularly in the needs of productions besides the necessity to
control markets and enact laws and legislations that forbidden the manipulation of
wholesale prices and the consumer.
The next article to consider is «The Effect of Currency Devaluation on
Egyptian Econom»(2018).. This paper assesses the various fluctuations in the
exchange rate of the currency as well as measuring of the effects of devaluation of
currency on the Egyptian economy.this study shows that devaluation explain a
large part of the real change in Egypt's GDP. As the Egyptian government floated
the currency; to encourage investment and stabilize the foreign exchange market
due to obvious fluctuations in the exchange rate of the Egyptian pound after the
revolution of 25 January 2011, It should take into account poor groups as a result
of high prices and encourage individuals on birth
we can have this conclusion:In 1990 the Egyptian economy faced internal
and external shocks, but the Egyptian authorities, in most of these cases, could
absorb these shocks through the international reserves of the foreign currency.
When they reached the critical point, the Egyptian Central Bank started the
devaluation of the Egyptian Pound against the US dollar.After 25th Jan.2011, the
Egyptian Central Bank interfered continuously in the exchange market of the
foreign currency to keep a stable exchange rate for the Egyptian Pound. However,
there was no real exchange rate against the US dollar which led to the increase of
speculations. The black market flourished to deal with the foreign currency
because of the problems that started after the 25th January revolution and the
economic and political instability.And When the monetary authorities of the
Egyptian Central Bank started to float the Egyptian Pound because of the great
economic problems at that time, the bank interfered in the exchange market
afterwards to keep a stable exchange rate for the Egyptian Pound against the US
dollar.5- After 25th Jan.2011, the Egyptian Central Bank interfered.
 The next article is called: «Coordination or Dominance of Fiscal and
Monetary Policy in Egypt»(2019). За According to this article, we can find.This
study investigates to what extent of coordination between the fiscal and monetary
policies in Egypt in the period 1980-2017, it has been adopted in its methodology
on the vector error correction and Granger causality test. It concludes that there is a
significant relation between money supply and budget deficit on one hand and
inflation on the other hand, and that fiscal policy is dominant in monetary policy,
as a change of 10% of the budget deficit results in an increase in the inflation rate
of 8.1%. As for the relationship of the budget deficit to money supply, there may
be a one-way causal relationship between the budget deficit and the money supply
from the second to the tenth year, except the third year, which also confirms the
dominance of fiscal policy on monetary policy in Egypt in the period under
consideration.
Monetary policy is dominant in monetary policy as a change of 10% of the
budget deficit results in an increase in the rate of inflation of 8.1%, which means
that fiscal policy impedes monetary policy in its ability to reduce inflation in the
long term.
Debt servicing burdens have a significant impact on the balance of payments
deficit (Elhendawy, 2014), thusaffecting exchange rates and increasing inflation.
Moreover, increasing the public debt service burden resultingfrom sterile
intervention which has an impact on future inflation rates (Elhendawy, 2015). The
renewed interest inthe role of fiscal policy in economic stabilization has raised the
issue of the need for coordination betweenmonetary and fiscal policy, This issue
has been discussed in the light of the potential inflationary effects of
budgetdeficits, especially when this deficit is financed by the new money issue; it
illustrates the relationship between.fiscal and monetary policy so that fiscal policy
has a clear role in demand management..
Monetary policies in Egypt, where El-Refaie studied the coordination
between the fiscal and monetary policies inEgypt in the 1990s. The coordination
between the two policies in general, although it proved successful in
The last article , The issue discussed in this article is «The Relationship
between Perceived Corruption and FDI: A Longitudinal Study in the Context of
Egypt»(2021)Eman Moustafa. This paper investigates the dynamic relationship
between perceived corruption and foreign direct investment (FDI) in Egypt during
the period 1970–2019
The results of the Johansen cointegration technique and the multivariate
vector error correction model show a positive relationship between perceived
corruption and FDI, supporting the “greasing the wheels” effect of corruption. This
positive association can be explained by several factors, such as the cross-
interdependence of rent-generating assets with perceived corruption and FDI, and
the use of FDI data based on the balance of payments that has growing financial-
flows and phantom-FDI components. The findings of this paper have important
policy implications. Improving the fundamental governance structure in Egypt
should be accompanied by a comprehensive investment facilitation strategy to
compensate for the removal of “grease” from the “wheels”..
The main finding of this study is that perceived corruption in Egypt is
positively associated with total FDI and non-oil FDI inflows in both the short and
long run. Institutionally, this finding is counter-intuitive and challenges the
mainstream policy advice that weak governance and, hence, corruption put FDI at
risk. On the investment policy front, this observed positive correlation undermines
the edifice upon which the investment policy is based at the global, regional and
national levels and questions the logic of financial risk ratings for countries.
But interestingly, this study is not the first to detect such a positive
correlation. Apart from corruption, the findings support the importance of
economic fundamentals, namely market size, domestic agglomeration, and income
or wealth (per capita GDP), as determinants of FDI inflows. The evidence also
provides strong support for the view that FDI could be a key source of capital
accumulation in Egypt.
Analysis of the balance of payments
Let’s first look at Egypt’s macroeconomics (table 1)

from lin 2.
FDI inflows to Egypt were negative $483 million at the end of 2011;
however, they turned positive in 2012, to reach about $3 billion by the end of the
year.Over the period 2010–2019, Egypt has made considerable progress in
liberalizing its business environment and attracting FDI inflows, to reach $6 billion
(see table)
profit margain in the wholesale and retail market.(table 2）

from link 1
It can be concluded based on the results of Table (2) that the in the prices of
food commodities in the consumer markets is due not only to the liberalization of
the exchange rate, but also to the increase in the size of the marketing margin
obtained by the wholesaler and retailer, Strict state control of the markets, leading
to random prices by traders and harming consumers by raising prices.

Next, we will check the effect of the exchange rate liberation of the Egyptian
pound on the prices of agticultural suoolies:

2017 compared to 2016, which will result in higher production costs for
different commodities.The increase in the cost of the Fadden production as well as
increase the selling prices to compensate for the losses resulting from higher
production costs, and thus increases the margins of marketing for both wholesaler
and retail to achieve the target profits to reach the consumer prices displayed in the
market.This will result in lower revenue for Egypt and lower export profits. The
trade deficit widened.

Analyzing the relationship between fiscal (table3)

Recently, both variables have been trending downward due to COVID-19

and the implementation of the economic reform programme in 2016. . The results
indicate that fiscal deficit has a significant effect on inflation in the long run, as the
increase in fiscal deficit increases the inflation rate. This relationship is captured
through the causal effect of money supply on the inflation rate and the interest rate.
The interest rate also affects the fiscal deficit which eventually affects the inflation
rate. On the other hand, the interest rate does not seem to affect the inflation rate in
the short run. These results indicate that the problem of inflation in Egypt seems to
be a fiscal rather than a monetary phenomenon. Breaking the vicious circle of the
fiscal deficit, money supply growth, and the interest rate represents a critical factor
in dealing with Egypt's inflation and fiscal deficit.
egypt currency circulation (table4)

Thus stresses the existence of causal relationship to one direction of inflation

against both the budget deficit and the money supply, which affects the budget
deficit in the second slowdown. Then it feeds the budget deficit and inflation in the
third year, which in turn feeds the budget deficit in the fourth year and the causal
relationship between inflation and money supply has concluded that there is a one-
way causal relationship of money supply to inflation after four slows and then
inflation affects the money supply from the fifth to the tenth slowdown. As for the
relationship of the budget deficit to money supply, there may be a one-way causal
relationship between the budget deficit and the money supply from the second to
the tenth year, except the third year, which also confirms the dominance of fiscal
policy on monetary policy in Egypt in the period under consideration.
Egyptian Stock Exchange Performance in 2016 (Feb-Mar)(table5)

we notice that after a month of the devaluation of the Egyptian

Pound, there was an apparent fluctuation between the rises and fall in the
Egyptian Stock of Exchange index. That resulted from the evident rate
differences and exaggeration of the Egyptian Pound value against the US.
tourism revenues during the period2010-2015 (table5)

Although growth rate rose, it is less than the potential power and also less
than the ability of economy to grow. This grow the may achieve the
desired operating rates because the government moves towards removing
the barriers of investment and improving the economic situation.
However, there is an evident fall back of international reserves of foreign
currency. There is also fallback in exports and increase in imports. All
these factors affected the exchange rate of foreign currency. This, in turn,
led to the increase of the exchange rate of the US dollar. That is why
 there are two exchange rates for the US dollar, one of the official market
and the other of the black one.
Regression model
The aim of this study is to measure the effect of the devaluation of
currency on the Egyptian economy during the period.We will use the following
model to estimate the effect:

The previous equation was estimated to show the effect of the

devaluation of the exchange rate on the Egyptian economy As follows:

Population growth has a negative impact on Egypt's economic growth.

Thus, increase in population growth rate by one percent decreases
output growth by 0.8284%.

Conclusions
1-When we pay attention to the exchange rate of the Egyptian Pound against
the US dollar, we should not forget that there are a great number of other
currencies that are more important for the international transactions to Egypt such
as the Euro. So we must put in consideration such fluctuations. Therefore in case
the monetary authorities have intention to interface in the foreign exchange market
to achieve stability.
 2- Although devaluation helps some sectors grow in the economy, foreign
exchange earnings may not be sufficient enough to cover imported costs. This is
true when the supply side channel is larger than the demand-side channel of the
currency devaluation. Thus, the end result is a reduction in economic growth unless
the government reduces imported materials and returns to other options. Therefore,
the government should use other options such as import restrictions, such as tariffs
on Non-essential goods to improve the external sector and rationalization of
government spending.
3-Government should also consider using interest rate as a policy stance
together with the exchange rate policy. High interest rates have been a problem in
Egypt given the nature of investments in the country. High interest rates has led to
high production costs, high market prices which discourages aggregate demand
and hence a reduction in Gross domestic product

References
• https://gphjournal.org/index.php/ar/article/view/62/46
• https://www.researchgate.net/profile/Khaled-Elbagory/publication/
360143483_The_Effect_of_Currency_Devaluation_on_Egyptian_Econo
my/links/626447bdee24725b3ec06fac/The-Effect-of-Currency-
Devaluation-on-Egyptian-Economy.pdf
• https://www.ccsenet.org/journal/index.php/ijef/article/view/0/41238
• https://unctad.org/system/files/non-official-document/
diaeia2021d2a4_en.pdf