Egypt: LNG pressures raise currency liquidity concerns – Standard Chartered

The market focus has shifted from tourism and Suez Canal revenues to declining foreign exchange earnings from LNG exports. Hydrocarbon exports fell 60% year-on-year in FY24; we estimate lost revenue at $1 billion per month. We are revising our current account deficit forecasts as the hydrocarbon trade balance has moved into deficit, say Standard Chartered economists Carla Slim and Bader Al Sarraf.

FX Liquidity Concerns Remain Despite Improvement

“Egypt moved from being a net importer of hydrocarbons to a net exporter of hydrocarbons in 2020-23. This was driven by a sharp increase in LNG exports (mainly to Europe) thanks to the expansion of domestic LNG production from its Al Zohr field in the Eastern Mediterranean. Still, Egypt relies on hydrocarbon imports, including those from Israel, for domestic consumption, and exports any surplus after meeting domestic demand.”

“We estimate lost revenue from LNG exports at $1 billion per month this year, as regional conflict exacerbates pressure on Egypt’s LNG trade, via more volatile pipeline imports from Israel. LNG exports began to decline in early 2023 (see Figure 2) and have been under further pressure in 2024. Hydrocarbon exports fell 60% year-on-year to $5.7 billion in FY24 (year ending June 2024), making the hydrocarbon trade balance in a deficit of USD 7.6 billion from a surplus of USD 400 million a year earlier The decline in LNG exports and a recovery in imports due to better availability of foreign exchange led to an increase in the. current account (C/A) deficit to $20.8 billion in FY24 from $4.7 billion in FY23. As such, we raise our FY24 C/A deficit forecasts and fiscal year 25 to 7.0% (-3.0%) and 4.5% of GDP (-3.0%), respectively.”

“Market concerns related to Egypt’s currency liquidity have focused on its growing hydrocarbon trade deficit, in addition to losses in Suez Canal revenues (-24.3% YoY in FY24), although tourism revenues have remained stable (+5.5% year-on-year). The Middle East in recent days could still pose a downside risk to tourism. Revenue from the Suez Canal is also likely to continue to decline (falling to $6.6 billion in FY24 from a peak of $8.7 billion). USD in FY23); President Sisi recently stated that Egypt faces losses in the Suez Canal of up to USD 6 billion at the annual high.”