CENTRAL BANK OF EGYPT

Transcription

1 CENTRAL BANK OF EGYPT ECONOMIC REVIEW Vol. 53 No /2013 Economic Research Sector

2 The Economic Review is issued by the Economic Research Sector at the Central Bank of Egypt (CBE) on a quarterly basis. It aims to make available to a broad readership of specialists and non-specialists a wide range of information on the performance of the Egyptian economy during the reporting period. The CBE posts the Review on its website:

3 Contents Page Main Indicators 1- Macroeconomic Developments 1/1 - Gross Domestic Product (GDP). 1 1/2 - Employment and Unemployment.. 9 1/3 - Inflation /4 - Tourism Monetary and Banking Developments 2/1 - Monetary and Banking Policy and Monetary Aggregates /1/1 - Monetary Policy. 17 2/1/2 - Reserve Money (M0) /1/3 - Domestic Liquidity (M2) and Counterpart Assets. 23 2/1/4 - Payment Systems and Information Technology (IT) /1/5 - RTGS and SWIFT Local Services /2 - Banking and Credit Developments /2/1 - Banking Reform /2/2 - Supervision Sector /2/3 - Overview of the Aggregate Financial Position of Banks 38 2/2/4 - Interbank Transactions /2/4/1- Transactions with Banks Abroad /2/4/2- Interbank Transactions in Egypt 41 2/2/5 - Deposits. 41 2/2/6 - Lending Activity Non-Banking Financial Sector 3/1 - Regulatory and Legislative Developments /2 - Stock Market /3 - Mutual Funds Public Finance and Domestic Public Debt 4/1 - Consolidated Fiscal Operations of the General Government. 51 4/1/1- Estimates of the Consolidated Fiscal Operations of the General Government /1/2- Follow-up of the Execution of Consolidated Fiscal Operations of the General Government 54 4/2 - Domestic Public Debt /2/1- Debt of the Government (Net) /2/2- Debt of Public Economic Authorities (Net) /2/3 - Debt of the NIB (Net) 63 4/2/4- Intra-Debt /2/5- The Domestic Public Debt Service. 63

4 5 - External Transactions 5/1 - Foreign Exchange Market and NIRs /2 - Balance of Payments /2/1 - Current Account /2/1/1- Trade Balance /2/1/2- Balance of Services and Income and Net Transfers. 67 5/2/2 - Capital and Financial Account. 70 5/3 - External Trade /3/1 - Structure of Export Proceeds and Import Payments 73 5/3/2 - Sectoral Distribution of Merchandise Transactions. 76 5/3/3 - Geographical Distribution of Merchandise Transactions. 78 5/3/4 - Breakdown of Trade by Main Commodity /4 - International Finance /4/1 - Foreign Direct Investment (FDI) in Egypt /4/2 - External Official Grants /4/3 - External Debt 89 Annex Statistical Section.. 95

5 Main Indicators * GDP (LE bn) July/Sept. 2011/ /13 GDP at Market Prices Annual Growth Rate (%) GDP at Factor Cost Annual Growth Rate (%) GDP Growth Rate (at Factor Cost) by Sector (%) A) Productive Sectors of which: Electricity Construction and Building Water Agriculture, Irrigation and Fishing B) Services Sectors of which: Communications Real Estate Wholesale and Retail Trade Social Services Price Index (%) 2011/ /13 - Change in consumer price index (urban) (January 2010 = 100) Change in producer price index (2004/2005 =100) * The base year of GDP data was changed to 2011/2012.

6 -Monetary Survey July/Sept. 2011/ /13 End of Period Growth rate of domestic liquidity (M2) (%) Growth rate of time and saving deposits in local currency (%) Growth rate of deposits in foreign currencies (%) Foreign currency deposits/total deposits (dollarization rate) (%) Credit to the private business sector/total credit (%) Net claims on the government/total credit (%) Credit to the household sector/total credit (%) Credit to the public business sector/total credit (%) Change in the credit to the private business sector/change in total credit (%) Change in net claims on the government/change in total credit (%) Change in credit to the household sector/change in total credit (%) Change in credit to the public business sector/change in total credit (%) Loans/Deposits with banks (%) Investment in securities, TBs and equity participations/deposits (%) Net international reserves (US$ mn) at end of period Number of months of merchandise imports covered by NIR Annual Discount and Interest Rates (%) July/Sept. 2011/ /13 End of Period CBE Lending and Discount Rate Interest Rates on TB Repos (7-days) Overnight Deposit and Lending Rates at the CBE Deposit Lending Interest Rate on Deposits of More than One Month up to Three Months Interest Rate on Loans up to One Year US Dollar Exchange Rate Announced by the CBE (PT/Dollar) Buy and Sell Exchange Rates (Average of the Period) End of the Period (Buy Rate)

7 Consolidated Fiscal Operations of the General Government (Budget Sector) 2012/13 Estimates Actual FY (July/Sept.) LE bn -Total Revenues Total Expenditures Cash Deficit/Surplus Net Acquisition of Financial Assets Overall Deficit (Surplus) Total Finance Domestic Finance Banking Non-Banking Foreign Borrowing Arrears Other Revaluation Differences Net Privatization Proceeds Difference between TBs Face and Present Value Discrepancy Cash Deficit (Surplus) as a Percentage of GDP Overall Fiscal Balance as a Percentage of GDP Expenditures as a Percentage of GDP Revenues as a Percentage of GDP Domestic Public Debt End of June 2012 Sept LE bn Gross, due on: Government Debt (Net) Public Economic Authorities Debt (Net) NIB Debt (Net) minus Intra-debt Non-available.

8 Balance of Payments US$ bn July/Sept. 2011/ /13 Current Account and Transfers Trade Balance Merchandise Exports Oil and its Products % Other % Merchandise Imports Intermediate Goods % Investment Goods % Consumer Goods % Fuel, Raw Materials and Others % Services Balance Receipts, of which: Transportation % Travel % Investment Income % Payments, of which: Transportation % Travel % Investment Income % Transfers Official % Private % Capital and Financial Account Overall Surplus/(Deficit) Outstanding External Debt (at End of Sept.)

9 1/1- Gross Domestic Product (GDP) Macroeconomic Developments According to the data of the Ministry of Planning, the base year has been replaced by FY 2011/2012 at the beginning of the five-year plan. Indicators showed that the real GDP growth inched up to 2.6 percent (at market prices) and 2.5 percent (at factor cost) during the first quarter of FY 2012/2013, from 0.2 percent and 0.3 percent, respectively, during the previous corresponding period. Gross Domestic Product at Constant Prices July/September Value (LE bn) Growth Rate (%) 2011/ / / /2013 GDP at factor cost Indirect taxes (net) GDP at market prices Source: Ministry of Planning. *At 2011/2012 prices. (%) Real GDP Growth Developments (At Factor Cost) / /2012 July/Sept. Oct./Dec. Jan./Mar. Apr./June July/Sept. Oct./Dec. Jan./Mar. Apr./June July/Sept / / / GDP (at Factor Cost and 2011/2012 Prices) The increase in real GDP growth (2.5 percent) during the first quarter of FY 2012/2013 was mainly due to the higher contribution of domestic demanddriven sectors (2.59 percentage points), with a relative weight of percent of economic growth. The key contributors to growth were agriculture, irrigation

10 - 2 - and fishing (0.53 percentage point), the sectors of manufacturing and wholesale and retail trade (0.41 percentage point), the general government (0.25 percentage point) and construction and building (0.20 percentage point). On the other hand, the external demand-driven sectors made a negative contribution of 0.06 percentage point to real GDP growth. The slowdown was ascribed, above all, to the negative share of the Suez Canal (0.07 percentage point) and manufacturing (0.01 percentage point). Conversely, the tourism sector provided a positive contribution of 0.02 percentage point. (%) Real GDP Growth at Factor Cost (Annual Basis) Agriculture, Irrigation & Fishing Extractions Manufacturing Electricity Water Sanitation Construction & Building Transportation & Storage Communications Information Suez Canal Wholesale & Retail Trade Finance Insurance Social Solidarity Tourism Real Estate General Government Social Services Q1 2012/2013 (2.5%) Q1 2011/2012 (0.3%)

11 - 3 - Growth Rate and Share of Productive Sectors in Real GDP Growth (At Factor Cost) In the First Quarter of FY 2012/2013 Sector Share in Real GDP Growth (Percentage Point) Growth Rate (%) Domestic Demand- Driven Sectors Agriculture, irrigation and fishing Manufacturing Electricity Construction and building Transportation and storage Communications Wholesale and retail trade Finance Social Solidarity Real estate General government Social services Other sectors * Total 2.59 External Demand-Driven Sectors Extractions Suez Canal Tourism Total Grand Total 2.53 Including the sectors of water, sanitation, IT and insurance. Turning to the public and private sectors, they provided together 2.5 percent of GDP growth during July/September 2012/2013. The private sector was the key performer with a share of 1.96 percentage point, given that nearly a quarter of this contribution came from agriculture, irrigation and fishing (0.53 percentage point). The wholesale and retail trade sector accounted for 0.40 percentage point and the manufacturing sector added 0.37 percentage point. The public sector shared with 0.57 percentage point. The major contributors were the sectors of the general government, social insurance and electricity, while the share of the Suez Canal was negative.

12 - 4 - Contribution of the Private Sector to Real GDP Growth (at Factor Cost) Social Services Real Estate Tourism Finance Wholesale & Retail Trade Information Communications Transportation & Storage Construction & Building Manufacturing Extractions Agriculture, Irrigation & Fishing July/Sept. 2012/2013 (1.96 percentage point) Contribution of the Public Sector to Real GDP Growth (at Factor Cost) General Government 0.25 Social Solidarity 0.10 Insurance 0.01 Finance 0.07 Wholesale & Retail Trade 0.01 Suez Canal Communications 0.03 Transportation & Storage 0.02 Construction & Building 0.03 Water 0.01 Electricity 0.09 Manufacturing 0.04 Extractions July/Sept 2011/2012 (0.57 percentage point) - GDP and Sectoral Analysis of Output Gap The output gap, which reflects the current business cycle of the Egyptian economy, was calculated by comparing the estimates of potential real GDP growth rates * to actual rates (seasonally adjusted). The comparison showed that the economic cycle slowed down to -0.5 percent during the first quarter of FY 2012/2013, compared to (0.1 percent) in the preceding quarter. * The trend component was calculated by using the quarterly data of both the GDP and a set of economic sectors during the period of 2001/02 Q1 2012/13, by applying the approach of Hodrick-Prescott Filter. Then, the cyclical component which reflects the output gap was derived.

13 - 5 - Development of Real GDP Growth Rate divided into GDP Trend and GDP Gap (Annual basis) % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012/13 Q1 2002/ / / / / / / / / / GDP Gap - Business Cycle Actual GDP Growth - Seasonally Adjusted Potential GDP-Trend Actual GDP Growth Rates (Seasonally Adjusted) and the Output Gap of Main Economic Sectors Sector Output Gap (Economic Business Cycle) % Actual Growth Rate % July/Sept. April/June July/Sept. April/June 2012/ / / /2012 Real GDP Growth Communications Construction and building Electricity Extractions Finance Government Tourism Manufacturing Real estate Suez Canal Wholesale and retail trade Transportation and storage Source: Based on the Ministry of Planning data.

14 - 6 - By applying the above-mentioned methodology to the different economic sectors, the sectors that caused the slowdown could be divided into two groups. Under the first group, the sectors that had a negative gap were classified (tourism, Suez Canal, construction and building and extractions), whereas the second group included sectors with a positive gap (manufacturing and electricity). In the forefront of the sectors that relatively improved their business cycles came wholesale and retail trade, real estate, communications and finance. - GDP by Expenditure (at 2011/2012 Market Prices) On the demand side, the increase in real GDP growth stemmed basically from the higher contribution of final consumption to real GDP growth at market prices (2.3 percentage points) in Q1 2012/2013, due mainly to the larger share of the private sector (87 percent). Also, the growth in this quarter was attributed to the positive contribution of net external demand (exports of goods and services less imports of goods and services) that reached 1.1 percentage point, on the back of the better performance of the trade balance (the increase in exports and the decrease in imports) during Q1. However, the improvement in real GDP growth could have been better but for the rise in the negative contribution of capital formation (including change in the stock) during the period under review (a negative 0.9 percentage point). Shares of Consumption, Investment and Net Exports in Real GDP Growth Rate (At Market Prices) Net Exports Capital Formation Final Consumption (Percentage point) July/Sept. 2011/2012 July/Sept. 2012/2013

15 Real GDP Growth 1-Domestic Demand A- Final Consumption Private Public B- Capital Formation (Including Change in Stock) of which: Fixed Investment 2- Net External Demand A- Exports of Goods and Services B- Imports of Goods and Services Source: Based on the Ministry of Planning data. *2011/2012 prices Growth Rate and Share of Demand Components in Real GDP Growth at Market Prices July/September Share in GDP Growth (Percentage Point) 2011/ /2013* Growth Rate (%) 2011/ /2013* Implemented investments (at 2011/2012 prices) stepped down by 2.9 percent, to register LE 46.2 billion during Q1 of FY 2012/2013 (against a decline of 22.9 percent during the previous corresponding period), due to the decrease in the public sector's investments to LE 13.4 billion (against LE 16.4 billion). This downtrend was largely caused by the sectors of natural gas, electricity, and transportation and storage. By contrast, the private sector s investments accelerated to LE 32.8 billion, from LE 31.3 billion. The investments of this sector represented about 70.9 percent of total implemented investments during the period under review (against 65.7 percent), thanks to the sectors of manufacturing (excluding oil and natural gas), agriculture and irrigation, IT and tourism.

16 - 8 - Contribution of the Private Sector to the Real Growth of Investment Other Services Health Services Educational Services Real Estate Tourism Wholesale & Retail Trade Information Communications Transportation & Storage Construction & Building Other Manufacturing Oil Refining Natural Gas Crude Oil Agriculture, Irrigation & Reclamation July/Sept. 2012/2013 (3.2 percentage points) July/Sept. 2011/2012 (-18.8 percentage points) Settelments Other Services Health Services Educational Services Real Estate Finance Wholesale & Retail Trade Suez Canal Information Communications Transportation & Storage Construction & Building Drainage Water Ele ctr icity Other Manufacturing Oil Refining Natural Gas Crude Oil Agriculture, Irrigation & Reclamation Contribution of the Public Sector to the Real Growth of Investment July/Sept. 2012/2013 (-6.1 percentage points) July/Sept. 2011/2012 (-4.1 percentage points) The sectoral distribution of investments in the reporting period ran as follows: 30.2 percent in social services, 23.7 percent in productive services, 20.9 percent in extractions, 8.1 percent in the sectors of electricity, water and sanitation, 11.8 percent in manufacturing, 3.7 in agriculture, and 1.6 percent in construction and building.

17 - 9-1/2 - Employment and Unemployment According to the quarterly Labor Force Survey (LFS) released by CAPMAS, the size of the Labor force increased to million persons in Q1 2012/2013, up by 16 thousand persons above the end of June 2012, and 243 thousand persons or 0.9 percent above the end of Sept Moreover, data revealed that the number of the employed grew to million at end of Sept (18.90 million males and 4.70 million females), up by 54 thousand or 0.2 percent above the end of June 2012; and 49 thousand or 0.2 percent compared with the end of Sept The sector of agriculture and fishing accounted for the majority of the employed, with a share of 27.2 percent of the total number. Against this background, unemployment decelerated to 12.5 percent at end of Sept. 2012, from 12.6 percent at end of June, compared with 11.9 percent at end of Sept In more detail, unemployment among males recorded 9.1 percent at end of Sept (against 9.2 percent at end of June 2012 and 8.7 percent at end of Sept. 2011), compared with 24.0 percent for females (against 24.1 percent and 23.0 percent, in order). (%) Labor Market Indicators (Growth Rates) Sept. De c. Mar June Se pt. De c. Mar June Sept. 2010/ / /2013 Unemployment Labor Force Employment

18 - 10-1/3- Inflation A: Consumer Price Index (CPI) The first quarter of FY 2012/2013 witnessed a decline in the annual headline CPI inflation (urban) to 2.8 percent (from 3.8 percent during the corresponding period a year earlier). The decrease was largely pronounced in the group of housing, electricity and fuel (0.3 percentage point against 1.0 point), and the group of alcoholic beverages, tobacco and narcotics (nil against 0.3 point). Decreases were also observed in the groups of furnishings, household equipment and routine maintenance, and clothing and footwear (by 0.1 point each). % Annual CPI and Price Index of Food and Non-Alcoholic Beverages (Urban) Source : CAPMAS On the other hand, increases were manifest in the group of food and nonalcoholic beverages, whose share in headline inflation mounted to 2.3 points (from 2.2 points). Likewise, the shares of healthcare and communications grew by 0.1 point each. Yet, the contributions of the other groups remained at the same level. Percentage Point Meat & Poultry All Items Jun.2011 Jul Aug Sep Oct Nov Dec Jan.2012 Feb Mar Apr May Jun Jul Aug Sep.2012 Food and Non-Alcoholic Beverages Contribution of Main Items of Food to Headline Inflation (Annually) During July/Sept. Bread & Cereals 2011/ /2013 Fish Milk, Cheese & Eggs Fruit Vegetables Sugar 6.2

19 -11- The following table illustrates the shares of CPI groups (urban) in headline inflation in the periods of review and comparison: Inflation in Share in Headline Main CPI Groups Inflation in July/Sept. July/Sept. (%) (Percentage Point) 2011/ / / /13 General Index Food and non-alcoholic beverages Alcoholic beverages, tobacco and narcotics Clothing and footwear Housing, water, electricity, gas and fuel Furnishings, household equipment and routine maintenance Healthcare Transportation Communications Culture and recreation Education Restaurants and hotels Miscellaneous goods and services According to the CPI (urban), headline inflation (m/m) decelerated to 0.9 percent on average in the period under review (compared with 1.2 percent in the period of comparison), hitting its lower level (0.4 percent) in July % 1.5 Monthly Inflation Rate According to CPI (Urban) Jun-11 Jul Aug Sep Oct Nov Dec Jan-12 Feb Mar Apr May Jun Jul Aug Sep-12

20 B: Producer Price Index (PPI) In the first quarter of FY 2012/2013, the annual headline PPI inflation noticeably climbed to 9.8 percent, from 1.1 percent in the corresponding period a year earlier. 22 % Annual Inflation Rate According to PPI (2004/2005 = 100) Jun-11 Jul Aug Sep Oct Nov Dec Jan-12 Feb Mar Apr May Jun Jul Aug Sep-12 The rise in PPI inflation was traced to the higher contribution of agriculture and fishing (6.1 points against 0.2 point), owing to the rise in the subgroup of vegetables (6.9 points against nil). This uptrend was mainly driven by the marked acceleration in the inflation rate of this group from 0.5 percent to 18.6 percent. The share of mining and quarrying also edged up (3.2 points against 0.3 point), notably because of the higher contribution of crude oil (4.9 points against 0.5 point). The higher inflation was also brought about by the pickup in the contribution of food and accommodation groups (0.3 point against nil) and electricity and gas (0.1 point against nil). Conversely, the contribution of the manufacturing group fell (0.1 point against 0.5 point) and also that of water supply activities (nil against 0.1 point). The following table shows the inflation rates and shares of PPI groups in headline inflation during the two periods of review and comparison:

21 Shares of PPI Groups in Headline Inflation (2004/2005 = 100) Main PPI Groups Inflation (%) Share in Headline Inflation (Percentage Point) Share in Headline Inflation (Percentage Point) July/September July/September July/September 2011/ / / /13 General Index Agriculture, Irrigation and Fishing, of which: Cereals and leguminous crops Rice Vegetables Fruit Poultry and eggs Fish Mining and Quarrying, of which: Crude oil Sand and stone Manufacturing, of which: Processed food products, of which: Oils and fats Dairy products Fertilizers Wood and products Cement Iron and steel Electricity and Gas, of which: Electric power generation, transmission and distribution Water Supply Activities Transportation and Storage, of which: Accommodation and Food Services, of which: Meal serving services in limited service facilities Information and Communications Source: CAPMAS.

22 -14-1/4- Tourism According to the statistics of the Central Agency for Public Mobilization and Statistics (CAPMAS) and the Ministry of Tourism, the number of arrivals rose during July/Sept. 2012/13 by 10.4 percent as compared with the previous corresponding period to 3.0 million (against 2.8 million). However, tourist nights by departure declined by 5.2 percent to 35.5 million (against 37.4 million) due to the drop in the average stay during the period to 11.6 nights (from 13.6 nights). Million Tourists Number of Tourists and Tourist Nights during July/September 2011/ /2013 Number of Tourists Number of Tourist Nights Million Nights Source: The CAPMAS As a consequence, tourism revenues decreased during July/Sept. 2012/13 by 2.3 percent as compared with the corresponding period to US$ 2.6 billion (against US$ 2.7 billion) in spite of the rise in the average spending per tourist a night by 3.0 percent to US$ 74.4 (against US$ 72.2). Tourism revenues represented 0.9 percent of GDP at current market prices (against 1.0 percent in the period of comparison); and about 15.4 percent of total current receipts including transfers (against 16.3 percent). Investments in the tourism sector amounted to some LE 1.6 billion during July/Sept. 2012/13 (against LE 1.1 billion in the corresponding period), constituting 3.3 percent of total executed investments (against 2.4 percent). The private sector invested LE 1.5 billion or 93.6 percent of the total.

23 Tourism Indicators July/Sept. 2011/ /2013 Change + (-) (%) Number of arrivals (000s) Number of tourist nights by departure (000s) The average spending per tourist a night (US$ ) Tourism revenues (US$ bn) Current receipts including transfers (US$ mn) Average tourist stay (night) GDP at current prices (LE bn)* GDP at current prices (US$ bn)* Average exchange rate during the year Source: CBE, CAPMAS, and the Ministry of Planning and International Cooperation. * GDP during the year. Geographical Distribution of Tourist Flows 1-Number of Arrivals Total arrivals from all tourist markets mounted to 3.0 million tourists, up by 0.2 million or 10.4 percent compared with the previous corresponding period. Such a rise was mainly in the number of arrivals from the European countries and the Middle East group. The European group remained in the forefront, with a relative weight of 71.1 percent of total tourist flows, as the number of arrivals therefrom rose by 0.1 million or 5.3 percent. The Middle East group ranked second with a relative weight of 19.6 percent of total tourist flows, as the number of arrivals therefrom increased by 0.1 million or 30.4 percent. No. (000s) Number of Tourist Arrivals July/Sept. 2011/ /13 Relative Weight No. (000s) Relative Weight Change + (-) % Total Europe Middle East Africa The Americas Asia and the Pacific Others

24 Tourist Nights by Departure: Tourist nights spent by all departure groups declined by 5.2 percent to 35.5 million in July/Sept. 2012/13 (against 37.4 million in the same period a year earlier). The following table illustrates the relative importance of departure groups in terms of tourist nights by departure. The European group came in the lead, accounting for 66.5 percent of the total in the period under review, up by 1.9 percent as compared with the corresponding period. The Middle East group ranked second with a share of 23.2 percent of the total despite the decline in the number of tourist nights by 17.2 percent. The rates of decline in the number of tourist nights of other tourist groups were relatively high except for the Asian and Pacific countries that rose by 1.5 percent. Number of Tourist Nights by Departure No. (000s) July/Sept. 2011/ /2013 Relative Weight No. (000s) Relative Weight Change + (-) % Total Europe Middle East Africa The Americas Asia and the Pacific Others

25 Monetary and Banking Developments 2/1- Monetary and Banking Policy and Monetary Aggregates 2/1/1- Monetary Policy As the ultimate aim of the monetary policy is price stability, the CBE seeks to bring inflation to an appropriate and stable level conducive to fostering confidence, stimulating investment, and achieving the targeted economic growth. The overnight interbank interest rate is considered the operational target of the monetary policy, whereby a framework based on the corridor system is applied, within which the ceiling is the overnight interest rate on lending from the Central Bank, and the floor is the overnight deposit interest rate at the Bank. Hereunder are the main developments that took place over the period under review: 1- Interest Rates The decisions taken by the MPC in its two periodic meetings held in July/September of FY 2012/2013 were responsive to the changes in inflation and the Committee's estimates of inflationary pressures. In these meetings (dated July 26 and September 6, 2012), the MPC decided to keep the CBE's key interest rates (overnight deposit and lending rates) unchanged at 9.25 percent and percent per annum, in order. Also, the lending and discount rate was maintained at 9.50 percent per annum, and the repo rate at 9.75 percent per annum. Subsequently, in the meetings of 18 October and 6 December 2012 and 31 January 2013 (at the time of preparing this Review), the MPC decided to keep the aforementioned rates unchanged. The following table shows the CBE's key interest rates, 7-day repo rate and the lending and discount rate, according to the MPC's decisions taken in the meetings held during the period: Overnight Deposit Rate Overnight Lending Rate 7-Day Repo Rate Lending and Discount Rate 14 June % % 9.75% 9.50 % 26 July 2012 unchanged unchanged unchanged unchanged 6 Sept unchanged unchanged unchanged unchanged

26 The following chart displays that the weighted average of overnight interbank interest rate in the period under review moved slightly below the middle of corridor. This was indicative of the improvement in liquidity levels at the banking system, as a result of the actions taken by the CBE during the preceding periods. O/N Interbank Rate and Policy Rates ( % ) Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Overnight interbank Deposit facility Lending facility The weighted average of the market interest rate on three-month deposits has remained stable at 7.7 percent since June 2012 till the end of September 2012, while the weighted average of the market interest rate on six-month and one year deposits rose to 7.8 percent and 8.8 percent, in order, in September 2012 (against 7.6 percent and 8.4 percent in June 2012). Also, the weighted average of the market rate on one-year loans increased to 12.0 percent + in September 2012 (from 11.9 percent in June 2012). 2- Open Market Operations In the period under review, the CBE reduced the required reserve ratio twice (from 14 percent to 12 percent, and further to 10 percent), continued to conduct 7-day repo operations on a weekly basis, and made available the 28- day repo operations to provide adequate liquidity to a number of banks that face liquidity shortages. As a result, the liquidity level at the banking + Interest rate on corporate loans after the application of DMMS.

27 system was favorably influenced in the first quarter of FY 2012/2013. The liquidity shortage noticeably improved in the domestic market, declining on average to LE 3.4 billion at end of September 2012 (the shortage was an outcome of 7-day and 28-day repo operations and overnight deposits that averaged LE 7.7 billion, LE 6.1 billion, and LE 10.4 billion, in order). In comparison, at end of June 2012, the average liquidity shortage amounted to LE 26.7 billion (because of 7-day repo operations and overnight deposits in the amount of LE 33.1 billion and LE 6.4 billion on average). 2/1/2- Reserve Money (M0) Reserve money (known as monetary base or high-powered money) is considered the monetary base in its broad definition. Reserve money consists of the sum of currency in circulation outside the CBE and banks local currency deposits held at the CBE. The counterpart assets of reserve money are made up of the CBE's net foreign assets and net domestic assets. The latter includes net claims on both the government and banks, and other items (net). Reserve money amounted to LE billion at end of September 2012, down by LE 11.9 billion or 4.5 percent during July/September 2012/2013 (against a decline of LE 9.8 billion or 3.9 percent in the corresponding period a year earlier). The decrease in reserve money reflected the decline in local currency deposits at the CBE by LE 17.0 billion or 29.0 percent, reaching LE 41.7 billion. However, the decline was held back by the rise of LE 5.1 billion or 2.5 percent in the currency in circulation outside the CBE, bringing its balance to LE billion or approximately 83.4 percent of reserve money at end of September (%) Growth Rate of Reserve Money by Component during July/September (6.2) Currency in circulation outside the CBE Banks' deposits in local currency Grow th rate of reserve money (6.4) 2010/ / /2013

28 Reserve Money and Counterpart Assets Balances at the End of Sept. (LE mn) Change during July/Sept. + (-) 2011/ / Value % Value % A- Reserve Money (9750) (3.9) (11945) (4.5) Currency in circulation outside the CBE Banks' local currency deposits (15635) (21.7) (17027) (29.0) B- Counterpart Assets (9750) (3.9) (11945) (4.5) Net Foreign Assets (15167) (10.3) (5823) (7.7) Foreign Assets (15038) (9.6) (2818) (3.1) Foreign Liabilities Net Domestic Assets (6122) (3.3) Claims on the Government (Net) Claims on Banks (Net) (3000) (2040.8) 1051 (38.8) Net Other Items (36153) (3329.0) (38421) (154.0) The breakdown of the currency in circulation (including subsidiary coins) by denomination showed a slight rise in the relative importance of the medium denominations (LE 5, LE 10 and LE 20). These notes accounted for 6.2 percent of the total currency in circulation at end of September 2012 (against 6.0 percent at end of June). Likewise, the relative importance of the LE 200 note rose from 42.6 percent to 43.1 percent. By contrast, the relative importance of the LE 50 note declined from 10.1 percent to 9.8 percent, and so did the LE 100 note (40.1 percent from 40.5 percent). Against these changes, the average value per note decreased to LE 42.6 at end of September 2012 (against LE 42.8 at end of June). Relative Importance of the Currency in Circulation by Denomination At End of 43.1% 0.8% 6.2% 9.8% 42.6% 0.8% 6.0% 10.1% Up to LE 1 LE 5-LE 20 LE 50 LE 100 LE % 40.5% Sept June 2012 The pickup in the currency in circulation outside the CBE was a reflection of the increase of LE 6.6 billion or 3.2 percent in banknote issue in July/September 2012/2013 (against LE 7.3 billion or 4.1 percent in the previous corresponding period), bringing its balance to LE billion at end

29 of Sept As for the components of the issue cover, the value of gold constituted LE 20.0 billion, the Egyptian government bonds LE billion, and foreign currencies and notes LE 15.2 billion worth. Thus, the structure of the cover at end of Sept. was as follows: government bonds (83.6 percent), foreign currencies and notes (7.1 percent), and gold (9.3 percent). Components of the Banknote Issue Cover LE bn June 2011 Sept June 2012 Sept Gold Foreign currencies & notes Egyptian government bonds The decline in the counterpart assets of reserve money was primarily due to the contractional effect of both net domestic assets and net foreign assets. The former gave rise to 2.3 percentage points of the decline, while 2.2 percentage points were caused by the latter. Relative Importance of Counterpart Assets of Reserve Money at End of Sept Net claims on banks -0.7% Net other items -5.3% Net foreign assets 27.9% Net claims on the government 78.1%

30 The LE 6.1 billion decrease in the CBE's net domestic assets was an outcome of the decline in its other items (net), which was curbed by the rise in the CBE's net claims on both the government and banks. In figures, the CBE's net claims on the government picked up by LE 31.2 billion (owing to the LE 18.2 billion increase in its claims on the government and the LE 13.0 billion decline in government deposits therewith). Also, the CBE's net claims on banks rose by LE 1.1 billion, because of the rise in its claims by LE 0.9 billion and the drop in banks' foreign currency deposits at the CBE by LE 0.2 billion worth. Net other items had a contractional effect on money reserves, as they retreated by some LE 38.4 billion, registering a negative balance of LE 13.5 billion. That was traceable to the drop in the balance of open market operations by LE 36.2 billion (because of the decline in the balance of repo agreements by some LE 23.0 billion and the rise in banks' deposits at the CBE by LE 13.2 billion), and the decline in net unclassified assets and liabilities by LE 2.2 billion. Meanwhile, net foreign assets at the CBE shrank by LE 5.8 billion worth, due to the fall in the CBE's foreign assets by LE 2.8 billion worth and the rise in foreign liabilities by the equivalent of LE 3.0 billion.

31 - 23-2/1/3- Domestic Liquidity (M2) and Counterpart Assets Domestic liquidity is composed of currency in circulation outside the banking system and deposits at banks (in both local and foreign currencies). At end of September 2012, domestic liquidity posted LE billion, up by LE 29.9 billion or 2.7 percent in the period July/September 2012/2013 (against a rise of LE 15.0 billion and 1.5 percent in the same period a year earlier), which is nearly double the increase that took place in the corresponding period. Structure of Domestic Liquidity End of September 2012 Local currency time and saving deposits 58.1% Money supply 25.2% Foreign currency demand deposits 4.0% Quasi-money 74.8% Foreign currency time & saving deposits 12.7% The pickup in domestic liquidity was a reflection of the growth in money supply and quasi-money. Money supply (M1) scaled up by LE 8.3 billion or 3.0 percent in the reporting period (against LE 5.1 billion or 2.0 percent in the period of comparison), amounting to LE billion or 25.2 percent of total domestic liquidity at end of September The rise in money supply reflected the increase in the currency in circulation outside the banking system by LE 4.0 billion or 2.1 percent and the pickup in local currency demand deposits at banks by LE 4.3 billion or 5.3 percent. Quasi-money augmented by LE 21.6 billion or 2.6 percent in the reporting period (against LE 9.9 billion or 1.3 percent in the respective period a year earlier), scoring LE billion or nearly three quarters (74.8 percent) of domestic liquidity at end of September That rise reflected the growth in both LE time and saving deposits and foreign currency deposits (demand and time and saving). LE time and saving deposits surged by LE 19.5 billion or 3.1 percent, to LE billion or 77.6 percent of total quasi-money and 58.1 percent of total domestic liquidity at end of September The increase of LE 23.7 billion or 4.2 percent to LE billion in LE time and saving deposits of the household sector outstripped the rise in total deposits. Nevertheless, such a rise was held back by the fall in the deposits of the business sectors (public and private) by LE 4.2 billion.

32 Deposits in foreign currencies went up by only LE 2.1 billion worth or 1.1 percent to LE billion or 20.3 percent of total deposits at banks (dollarization rate) at end of September 2012 (against 20.7 percent at end of June 2012). (%) 10.0 Dollarization Rate (Deposits in US$/Total Deposits) & Interest Rates on Deposits in LE & US$ (%) Sept.07 Dec.07 Mar.08 Interest Rate on 3-month Deposits in US$ Dollarization Rate Jun.08 Sept.08 Dec.08 Mar.09 Jun.09 Sep.09 Dec.09 Mar.10 Jun.10 Sept.10 Dec.10 Mar.11 Jun.11 Sept.11 Dec.11 Mar.12 Jun.12 Sept.12 Interest Rate on Less Than 3-month Deposits in LE The increase in domestic liquidity was traced to the rise in net domestic assets. However, such an increase was held back by the fall in net foreign assets. Net domestic assets made a positive contribution to domestic liquidity growth (3.4 percentage points), while the latter made a negative contribution (0.7 point) (percentage point) Domestic Liquidity Growth by Counterpart Assets July / September Net Foreign Assets Domestic Credit Assets Other Balancing Items (Net) Domestic Liquidity Growth / / /

33 The increase in net domestic assets (LE 37.5 billion) was ascribed to the pickup in domestic credit by LE 59.7 billion or 5.6 percent (against LE 50.3 billion or 5.6 percent) to LE billion at end of September The rise was curbed by the increase in the negative balance of net balancing items by LE 22.2 billion or 16.4 percent to LE billion. About 92.6 percent of the increase in domestic credit during the period went to the government sector. Net claims on the government markedly expanded by LE 55.3 billion or 9.6 percent (against LE 45.0 billion and 10.3 percent), bringing its balance to LE billion or 56.0 percent of the credit granted by banks at end of September The rise was an outcome of the pickup in banks' holdings of government securities and TBs by LE 20.9 billion, the increase in government loans by LE 19.6 billion and the decrease in government deposits at banks by LE 14.8 billion. Domestic Credit by Sector at End of September 2012 Household Sector 10.2% Private Business Sector 30.1% Public Business Sector 3.7% Government Sector (net) 56.0% Rising by LE 3.1 billion or 2.8 percent (against LE 2.9 billion or 2.9 percent), credit to the household sector recorded LE billion or 10.2 percent of total domestic credit. The share of the public business sector also expanded by LE 1.3 billion or 3.1 percent (against LE 1.9 billion or 5.7 percent), bringing its balance to LE 41.9 billion (3.7 percent of total credit). Credit to the private business sector went up by only LE 42 million (against a rise of LE 593 million), to register LE billion or 30.1 percent of total domestic credit at end of September 2012.

34 Relative Structure of Net Foreign Assets At End of September 2012 Net Foreign Assets with Banks 53.2% Net Foreign Assets with the CBE 46.8% Net foreign assets at the banking system (expressed in LE) reached LE billion at end of September 2012, with a retreat of LE 7.6 billion or 4.8 percent in the reporting period (against a decrease of LE 28.2 billion or 11.1 percent in the same period a year earlier). The decline was brought about by the fall in net foreign assets at the CBE by LE 5.8 billion or 7.7 percent and at banks by LE 1.8 billion or 2.2 percent. Change in Foreign Assets and Liabilities at the Banking System Value (Value in LE mn) Change during July/September + (-) 2011/ /2013 Growth Rate % Value Growth Rate % Net Foreign Assets at the Banking System (28241) (11.1) (7642) (4.8) Net Foreign Assets at the CBE (15167) (10.3) (5823) (7.7) -Foreign assets (15038) (9.6) (2818) (3.1) -Foreign liabilities Net foreign Assets at Banks (13074) (12.3) (1819) (2.2) -Foreign assets (14522) (10.4) (3745) (3.3) -Foreign liabilities (1447) (4.4) (1926) (5.8)

35 - 27-2/1/4- Payment Systems and Information Technology (IT) The CBE continued its efforts to upgrade the payment systems and information technology to bolster the soundness and stability of the financial system and reduce credit risks, together with expediting payment settlements and ensuring their credibility and confidentiality. A step forward in this direction was the introduction of the RTGS system. Among the measures taken in this regard were the following: Payment Systems The project of automating the payment of civil servants salaries via cards is moving forward, in cooperation with the Ministry of Finance after being disrupted following 25 January Revolution. A number of new governmental units were put into operation at the National Bank of Egypt. Among the vast benefits of this project was minimizing the risks of fund transfer of salaries from banks to the related government units. The rules of ACH direct debit effected in the Clearing House, between banks and the Egyptian Banks Company, have been reviewed. Such payment services will help facilitate the expansion of electronic-based payments. The service went through a pilot phase in October The CBE is currently gearing to join the COMESA Clearing House. This initiative aims at supporting the trade exchange with the COMESA countries as a major contributor to the Egyptian national security. The relevant internal rules and procedures are under consideration by the Central Bank of Egypt, parallel to the sign-off of the related agreements with COMESA and the Central Bank of Mauritius. In collaboration with the Ministry of Finance, the CBE is in the process of transferring government payments (paper cheques) into electronic payments to be effected by banks through Automated Clearing House. That project aims at upgrading government procedures and tightening control on government payments. Such a project is scheduled to start in the first quarter of Information Technology The CBE has finished drawing out the terms/specifications booklet for the preparation of a permanent Disaster Recovery (DR) site for the CBE, to be functional in emergencies as a substitute for the main data centre in El- Gomhoreya Building. This is intended to ensure the continuity of IT services.

36 Also, procedures are currently being taken to invite the specialized companies for bidding The CBE made an elaborate study of the needs of the IT (including the estimated cost) for the establishment of a Business Continuity Site designed to be accessible, in emergency cases, to the employees of the sectors of investment and external relations and their affiliate units, to enable them to use the bank's different systems. In addition, the possibility of making such service available to the other sectors of the bank is to be posed for consideration. In respect of the IT development plan at the Printing Press, the course of action to be taken to complement the development of the other three systems (accounts - monitoring of inventory - costs) is currently under consideration, together with modernizing the IT infrastructure of the Press. Under the plan of developing the CBE branches and modernizing their IT applications; as far as the operations of government accounts are concerned, the accounting system of the CBE CAS started operation in Alexandria branch. A study of the application of CAS to the other branches (Mohandessin and Port Said) is about to be finished soon. The CBE has participated in the IT infrastructure installation and implementation project and took the necessary precautions to put the GATS system, for electronic government transfers, into operation. The project aims at enabling the Ministry of Finance to transform government payments to the CBE, into electronic (cashless) government payments. Such a step is bound to enhance the efficiency, accuracy and speed of making the accounting entries on the same day of their receipt. The IT infrastructure installation and implementation project has been launched and necessary precautions have been taken to put the Straight Through Processing system of the automated clearing house (ACH-STP) into operation. By linking the CBE to the interbank ACH, the project will enable it not only to receive electronic transfers from other banks, but also to automatically and directly affect government accounts on the CAS system therein. In this sense, the project will upgrade and expedite the settlement of the government receipts processed through the ACH of banks.

37 - 29-2/1/5- RTGS and SWIFT Local Services Local banking transfers under the RTGS (introduced in mid March 2009) showed an increase in the number of executed messages to thousand messages at a value of LE billion in July/September of FY 2012/2013 (against thousand messages at a value of LE billion in the corresponding period a year earlier). July/Sept. Number of Messages (Unit) RTGS and SWIFT Local Services (in Local Currency) Value of Transfers (LE mn) Change during the Period Number Value 2010/ / (7555) ( ) 2012/ According to the statistics of the CBE Automated Clearing House that became part of the RTGS system since its initiation, the number and value of exchanged cheques scaled up to 3.3 million at a value of LE billion (from 3.1 million and LE billion in the same period a year earlier). As a result, the average value per cheque decreased to LE 52.4 thousand (against LE 52.7 thousand). CBE Automated Clearing House Activity July/Sept. Number of Cheques Value of Cheques Change Rate (%) (Thousand) (LE mn) Number Value 2010/ / (3.8) / Transactions executed in foreign currencies under the Fin-Copy system, via SWIFT, revealed a decrease in terms of the number and value of executed transactions. Specifically, their number amounted to 3.1 thousand at a value of US$ 11.3 billion, against 3.4 thousand at a value of US$ 16.6 billion a year earlier. SWIFT Local Services (in US Dollar) July/Sept. Number of Messages (Unit) Value of Transfers (US$ mn) Change during the Period Number Value 2010/ / (3023) 2012/ (326) (5291)

38 2/2/1- Banking Reform /2- Banking and Credit Developments In continuation of the banking reform program, launched in September 2004, the CBE finished the implementation of the second phase ( ). This phase aimed at raising the efficiency and soundness of the Egyptian banking sector, and enhancing its competitiveness and ability for risk management so that it can perform its role in financial intermediation in a way beneficial to the national economy, and achieve the targeted development rates. The second phase of the reform program was based on a number of pillars, namely: Preparing and implementing a comprehensive program for the financial and administrative restructuring of specialized state-owned banks (the Principal Bank for Development and Agricultural Credit, the Egyptian Arab Land Bank, and the Industrial Development and Workers Bank of Egypt), which is expected to positively affect these banks performance. Following up periodically the results of the first phase of restructuring the commercial state-owned banks (the National Bank of Egypt (NBE), Banque Misr (BM) and Banque du Caire (BdC)). The follow-up showed that the first phase of the banking sector reform program ( ) had already borne fruit. In the second phase, the requirements for enhancing the efficiency of the said banks - in terms of financial intermediation, risk management, human resources, and IT - have been fully satisfied to ensure the continued improvement of their financial performance and competitiveness. Applying Basel II standards in Egyptian banks is considered an integral part of Egypt's regulatory framework, that aims at the following: - Enhancement of the management of all risk types to ensure banking stability. - A more efficient management of capital, in order to address virtual risks. - Keeping pace with the international best practices, to help improve the competitiveness of the Egyptian banking system. In this context, a protocol had been signed with the European Central Bank and seven European central banks to provide a three-year technical assistance program launched in January 2009, to implement Basel II requirements in the

39 Egyptian banking sector. It is worthy to note that the strategy of the CBE in implementing Basel II framework, which was announced for Egyptian banks and the relevant parties in an extensive meeting held in Oct. 2009, is based on the two main principles of simplicity and consultation with banks, to ensure banks compliance with these standards. According to the above-said strategy, Basel II standards should be phased in gradually over the following phases: The first phase (January - June 2009) focused on improving the technical skills of the CBE s core team and devising a strategy for Basel II implementation. This phase was successfully completed. The second phase (July June 2011) - the pivotal phase of the reform program - covers extensive coordination with the banking sector, through discussion papers related to the most important topics and selection of the most appropriate methods for application in Egypt, taking into consideration similar experiences in other countries that had implemented Basel II. Moreover, the quantitative impact of the possible consequences of Basel II standards will be measured before the mandatory application. That phase was also successfully completed. The third phase (July - December 2011) focused on the fine-tuning of future supervisory regulations related to Basel II, taking into account the legal aspects and development of corrective action plans commensurate with the different types of banks, according to the simulation results for each bank on a case-by-case basis. Also, a parallel run of existing regulations and Basel II will be applied upon issuance. In this context, draft regulations and some relevant proposals have already been set, as concerns banks that need to take additional actions to abide by the established minimum requirements of the capital adequacy standard. A study of the qualitative impact was also conducted on a sample of banks, pertaining to the level of internal audit to pave the way for the issuance of related supervisory regulations. In addition, some of the resources provided by the EU have been used to upgrade the regulatory performance of the Supervision Sector. Moreover, a new data warehousing framework will be implemented to improve the process of data collection and storage, in accordance with the future updated supervisory regime.

40 The fourth phase (implementation is under way) - a parallel run of Basel II and the existing regulations on capital adequacy will be applied upon issuance. Moreover, the data warehousing framework will be finalized. It should be taken into consideration that Basel standards develop and change in their own right, by virtue of their dynamic nature, so as to cope with the challenges of the global banking market. In this context, Basel III has been launched on the international level, and its full and timely implementation in the world banking market is expected to be completed by It is to be noted that while making arrangements for the application of Basel II, the CBE has been also considering Basel III applications in order to facilitate their future adoption in the Egyptian banking sector. During the preparation of this Review, the executive instructions of Basel II were applied to the Egyptian banking system. For banks which prepare their financial statements at the end of Dec. of each year, these standards shall be binding as of Dec. 2012, and for the other banks, as of June 2013 (Decision of the CBE Board of Directors dated 18 Dec. 2012). The second phase of the banking reform program which was guided by the positive results of the first phase ( ) had been finalized by the end of March Foremost of these results were the efforts exerted to contain the impact of the recent global financial crisis, as was the case in most other international financial markets and banking systems and, not least, the resilience of the Egyptian banking system in the wake of the events of January Revolution. Also, a shift was made from compliance-based to risk-based supervision. Furthermore, the MIS system was upgraded to ensure the accuracy and timeliness of required data. The European Central Bank took part in the first phase of upgrading the CBE Supervision Sector by concluding a cooperation agreement in Embracing an initiative promoting the development and growth of banking activities/services catering and access to finance for various sectors, especially small- and medium-sized enterprises (SMEs). In this regard, the CBE exempted banks' deposits - equivalent to the size of direct loans and credit facilities extended thereby to finance SMEs - from the 14 percent required reserve ratio (RRR was decreased to 12 percent and further to 10 percent during Q1 and Q2 of 2012, respectively). Needless to say that poor access to adequate, timely and reliable statistical data and information is one of the main obstacles to the development and finance

41 of small- and medium-sized enterprises (SMEs). Hence, the Central Bank of Egypt and the Egyptian Banking Institute (EBI), in collaboration with the Central Agency for Public Mobilization and Statistics (CAPMAS), embarked on a field survey of small- and medium-sized enterprises (SMEs) covering all the governorates of Egypt, on the basis of the full count approach. The first phase, conducted in Al Sharqiya Governorate, had been completed, and in the light of its results, the survey was carried out in the rest of the governorates. It is worthy to mention that all other governorates were surveyed, up to December Moreover, the database has been inaugurated on the EBI website in February Revising and issuing corporate governance rules in the Egyptian banking sector and the CBE. In this concern, the instructions of bank governance rules were approved by the CBE Board Decision dated July 5, 2011, after consultation with the Egyptian Financial Supervisory Authority (EFSA) within the framework of coordination among the regulatory authorities of the financial sector. Moreover, the draft of the said instructions was presented to all banks to get their feedback (comments and proposals) to avoid the difficulties of application. The first phase of the banking reform program ( ) was centered on four pillars: (1) consolidation and privatization of the banking sector, (2) financial and managerial restructuring of state-owned banks, (3) addressing the non-performing loans issue, and (4) upgrading the Supervision Sector at the CBE. As for the first pillar, some voluntary and state-forced mergers took place, leading to a decrease in the number of banks operating in Egypt from 57 at end of December 2004 to 39 banks at end of December Under this program, 80 percent of the share of the capital of the Bank of Alexandria was sold to Italy s Sanpaolo Bank, besides the divestiture of the shareholdings of stateowned banks in a number of joint venture banks. With respect to the second pillar, state-owned banks were restructured under a comprehensive and time-lined plan, designed by the Banking Reform Unit at the CBE. The plan was intended to develop all departments and technological systems, besides establishing new departments, particularly for risk management, information technology (IT), and human resources. To this end, a project on the application of the international best practices - implemented with the assistance of foreign consultants - was completed on time. In addition, a full audit of state-owned banks was conducted according to international accounting standards, covering the years from 2004 to Finally, the recruitment of highly qualified banking cadres and senior management at state-owned banks has supported those banks with adequate expertise to enable them to push ahead with reform and development.

42 Concerning the third pillar, to address the problem of non-performing loans, the CBE's NPL Management Unit worked out a variety of approaches and programs that helped settle more than 90 percent of NPLs (excluding debts of the public business sector). With regard to the non-performing loans of public business sector enterprises to public banks, about 62 percent was repaid in cash to the public commercial banks. As for the remaining debts (38 percent), an agreement was signed on 14/9/2009 whereby the in-kind repayment of the outstanding debt was made at the end of June A program to reform the Supervision Sector was devised to achieve the following targets: enhance the efficiency of this sector by benefiting from the international best practices, and apply the concept of risk-based supervision to ensure the sector s robustness and soundness. 2/2/2- Supervision Sector Being the regulator of banks in Egypt, the CBE aims to ensure the soundness of banks financial positions and evaluate their performance from the perspective of risk-based supervision. In addition, it ascertains banks compliance with the established regulatory standards, including the minimum reserve requirement and liquidity ratios, the maximum limits of a bank s concentration of investments with a single customer along with his related parties, and investments abroad, as well as the asset-liability matching in terms of maturity and currency. This is in addition to a number of qualitative standards that ensure - alongside the abovementioned - the soundness of banks, performance and the safety of depositors funds, including governance rules; information systems efficiency rules; and eligibility and competency criteria for officials and managers of key sectors at banks. The implications of the recent international financial crisis bore out that the instructions and reform policies adopted by the CBE to restructure banks, raise their capital and strengthen their risk management systems proved highly instrumental in containing the effects of the crisis. Moreover, the CBE had thoroughly monitored the financial crisis in many countries, especially in the euro area, so as to be capable of making immediate decisions - when necessary - to counteract the spillovers of the crisis in due time. After the 25 th January revolution, the CBE took a number of measures to promote trade, maintain the banking sector transactions and launch the mechanisms that enhance liquidity.

43 Hereunder are the instructions issued by the CBE to all banks during and after the period under review:- Extending exemptions from the minimum cash cover limit (50%) for all meat, poultry and sugar imports for additional six months, ending 30 June Banks are allowed to accept deposits in saving systems of three years and more, placed by legal persons, given that their balances shall be included in the denominator of the required reserve ratio (RRR). As of the 1 st of July till the end of Sept. 2012, a large number of banks were required to conduct a comprehensive review of the information on defaulting clients according to the new categories. Also, the information introduced by the CBE Board Decision No. 104 for 2012 on 3 Jan (amending the regulations of the credit registration system at the CBE) was added opposite to the client's name (eg. type and volume of bad debts that were written off without discharging the debtor, type and volume of rescheduled debts, the number of rescheduling operations concluded with the client, and the amount of claims waived in case the client repays his debts under a debt settlement). Moreover, the CBE followed up banks' progress in reclassifying defaulting clients who are listed in the negative list of credit rating according to the seven categories stated in the Decision as of Jan till May 2012 to pave the way for the disclosure of such information to banks via the CBE website and I score. Accordingly, this will help in taking appropriate credit-granting decisions. It is worthy to note that during the period under review, the CBE continued to perform its assigned role (concerning the inspection of banks) through the inspection teams according to the set plan to ascertain their compliance with the rules governing the credit registration. The CBE continued to work on developing the banking system, and maintaining its soundness and stability by ensuring the application of international best practices by banks. Moreover, the recent successive crises have highlighted the importance of supporting the governance systems and internal control at banks and enhancing the role of the regulatory entities. Against this background, the CBE Board of Directors issued, on its session dated 5 July 2011, a Decision on banks' governance rules. Banks were required to set or develop their governance systems accordingly, in line with the size and complexity of their respective activities, policies and risk management capacity;

44 no later than 1 March In case any bank fails to abide by any of these rules, the matter should be referred to the CBE for consideration, attached with reasonable justifications. The aforementioned governance rules mainly focused on the following: A clear definition of the responsibilities and obligations of the members of the board of directors, besides emphasizing that the senior management is accountable to the board; The roles of the board's committees and their formation; The supervisory role of the board on risk management and internal control systems; Formulation of effective policies for salaries and remunerations and for the management of conflicts of interest; and The principle of transparency and disclosure of important financial and non-financial information. During the period under review, 21 BoD members and 14 directors were added to the register of banks pursuant to Article 43 of Law No. 88 of the year 2003 promulgating the Law of the Central Bank, the Banking Sector and Money and in accordance with applicable fit and proper criteria. In the light of Article 32/3 of the aforesaid Law which states that the Governor of the Central Bank, following consent of the Board of Directors, shall approve the statute of the bank, and any modification thereto, certain articles of the statutes of 2 banks were modified during the period under review. Moreover, eighteen new branches of ten banks were added to the register of banks in accordance with the regulations set by the CBE that give due regard to the soundness of banks' financial positions, internal control systems, the efficiency of their information systems and capital adequacy to ensure that they can better face the risks arising from the expansion in their activities. In light of the rules regulating the electronic payment services, four banks were licensed to offer some e-banking services during the period under review. To organize dealing in the Forex market in Egypt, Forex dealers and money transfer companies operating in Egypt were subjected to off-site supervision, according to the Law of the Central Bank, Banking Sector and Money. In this respect, it is worthy to note that during the period under review,

45 the CBE Governor issued Decision No. 77 for 2012 to give a license to a new exchange dealer company. Moreover, 7 branches of existing Forex dealers were registered, thus bringing their total number to 492 nationwide. Moving to tourism services, the CBE - pursuant to the aforesaid Law - had already licensed shops in the customs areas at airports to sell in foreign currencies, alongside the Egyptian pound, with the aim of covering part of the State s resources of foreign currencies and encouraging tourism. One new shop was granted this license, thus bringing the total number of licensed shops to 82 in the period under review. Also, the number of licensed shops in the free zones reached 27 shops at the end of the same period. The CBE has been keen to support the primary dealers system established by virtue of the Minister of Finance s Decree No. 480 for 2002, by taking all means possible for its success, in view of its positive impact on the government stock market. Within this context, 15 banks were licensed to engage in the underwriting of the primary issues of government securities and to actively trade thereon in the secondary market. The license shall be reviewed annually in light of banks' compliance with the regulations issued by the CBE Board in its Decision dated 6 June As regards on-site supervision, the Central Bank made progress with its plan for the inspection of banks and exchange dealer companies, by implementing the international best practices and applying the concept of riskbased supervision. This concept demonstrates and analyzes the risks of banks and the measures taken to manage these risks, while ensuring the robustness and soundness of banks' financial positions. To this end, the inspection method was upgraded and inspection teams specializing in the issues of retail banking, market risks, information technology, and combating money laundering were formed. This helped in upgrading the risk management framework in a lot of banks, updating their IT systems, enhancing their internal supervision and control systems and paying heed to the quality of credit granting, thereby reducing the volume of non-performing loans at banks. On the other hand, the Central Bank continues to play its supervisory role in monitoring banks (concerning their readiness to apply Basel II requirements) and following up banks with respect to money transfers abroad within the framework of the regulatory instructions issued by the CBE to maintain forex reserves.

46 - 38-2/2/3 - Overview of the Aggregate Financial Position of Banks The aggregate financial position of registered banks operating in Egypt (40 in number) * posted LE billion at end of Sept. 2012, up by LE 46.9 billion or 3.4 percent during July/Sept. 2012/2013 (against LE 26.4 billion and 2.1 percent). 100% 80% 60% 40% 20% 0% Banks' Liabilities & the Relative Importance of their Components (End of September) LE bn Equities Provisions Bonds & Long-term Loans Obligations to Local Banks Obligations to Banks Abroad Total Deposits Other Liabilities Total Liabilities-Right Scale On the liabilities side, more than half of the rise (51.8 percent) stemmed from the pickup in deposits at banks (by LE 24.3 billion or 2.4 percent), to register LE billion and 74.2 percent of the aggregate financial position of banks at end of Sept Increases were also seen in banks equities (by LE 5.4 billion or 5.8 percent), as well as obligations to banks in Egypt (including the CBE) by LE 3.4 billion or 17.9 percent, and bonds and long-term loans (by LE 0.3 billion or 1.1 percent). In addition, other liabilities picked up by LE 15.7 billion or 11.7 percent. Conversely, obligations to banks abroad shrank by LE 1.6 billion or 10.8 percent, and provisions by LE 0.5 billion or 1.0 percent. Growth Rate of Banks' Liabilities during July/Sept. Obligations to Local Banks Obligations to the CBE (71.8) Obligations to Banks Abroad Bonds & Long-term Loans 2012/ /2012 Other Liabilities Total Deposits Provisions Reserves Capital (10.8) (9.6) (5.4) % (0.1) (1.0) * After adding the Arab International Bank; given that only 39 banks are covered by the financial position data.

47 % 80% 60% 40% 20% 0% Banks' Assets & the Relative Importance of their Components (End of September) LE bn Cash Securities & Investments Balances with Local Banks Balances with Banks Abroad Loan & Discount Balances Other Assets Total Assets-Right Scale On the assets side, banks' investments in securities and treasury bills expanded by LE 23.5 billion or 4.2 percent (against LE 3.4 billion and 0.7 percent in the corresponding period), recording LE billion or 41.0 percent of the aggregate financial position of banks at end of Sept Likewise, lending and discount balances increased by LE 1.7 billion or 0.3 percent to LE billion, thereby constituting 36.0 percent of banks' aggregate financial position. In addition, other assets augmented by LE 25.5 billion or 23.3 percent. On the other hand, balances with local banks retreated by LE 2.8 billion or 2.7 percent and so did balances with banks abroad by LE 2.3 billion worth or 3.1 percent. Growth Rate of Banks' Assets during July/Sept. Loan & Discount Balances Balances with Local Banks Balances at the CBE (6.3) (3.1) Balances with Banks Abroad (14.2) Securities & Investments 2012/ /2012 Other Assets Cash (3.0) %

48 The increase in banks' investments in securities and bills was mostly ascribed to the rise in their investments in government bonds by LE 21.1 billion. This is besides the increase in their corporate equities by LE 2.8 billion, and their investments in foreign securities by LE 0.3 billion worth. However, their investments in non-government bonds fell by LE 0.5 billion and in treasury bills by LE 0.2 billion. % Relative Structure of Banks' Portfolio Investment Treasury Bills Gov. Bonds Non-gov. Bonds Corp. Equities June 2012 Sept Foreign Securities 2/2/4 - Interbank Transactions 2/2/4/1 - Transactions with Banks Abroad In Q1 2012/2013, net transactions of local banks with correspondents abroad unfolded a decline in their net credit balances with banks abroad (by the equivalent of LE 0.7 billion or 1.2 percent) to stand at LE 60.4 billion worth at end of Sept (against LE 68.8 billion worth at end of Sept. 2011). The decline was a dual effect of the decrease in both their balances with banks abroad and their obligations thereto, by the equivalent of LE 2.3 billion and LE 1.6 billion, in order. Transactions with Banks Abroad (LE mn) Change in July/Sept. End of June Sept. June Sept. 2011/ / Value % Value % Net Position (12155) (15.0) (718) (1.2) Balances with banks abroad (13613) (14.2) (2323) (3.1) Obligations to banks abroad (1458) (9.6) (1605) (10.9)

49 - 41-2/2/4/2 - Interbank Transactions in Egypt The volume of transactions among banks in Egypt in the interbank market, in terms of deposits, increased by LE 2.7 billion or 15.7 percent in the reporting period (against LE 0.5 billion or 2.4 percent in the period of comparison), bringing total deposits to LE 19.9 billion at end of Sept The rise was an outcome of the hike in local and foreign currency deposits by LE 2.2 billion and LE 0.5 billion worth, respectively. Deposits in the Interbank Money Market LE bn June 2012 Sept Local Currency Foreign Currencies 2/2/5 - Deposits During Q1 2012/2013, banks' deposits (including government deposits) grew by LE 24.3 billion or 2.4 percent (against LE 12.7 billion and 1.3 percent in the corresponding period), standing at LE billion or 74.2 percent of banks' aggregate financial position at end of Sept Local currency deposits went up by LE 24.7 billion or 3.2 percent to post LE billion (76.6 percent or more than three quarters of deposits at banks) at end of Change in Deposits by Currency during July/September Sept On the other hand, deposits in foreign currencies fell by LE 0.4 billion worth or 0.2 percent, to LE billion worth at end of Sept Deposits at Banks by Sector (LE mn) Local Currency Foreign Currencies End of June June 2012 Sept June 2012 Sept Total Government sector Public business sector Private business sector Household sector External sector LE bn (0.5) (0.4) 2011/ /2013 Local Currency Foreign Currencies

50 The pickup in the local currency deposits of the household sector was higher than the increase witnessed in total LE deposits. In figures, its deposits in local currency scaled up by LE 26.7 billion or 4.5 percent to LE billion, thereby representing 77.8 percent of the total LE deposits at end of Sept Moreover, the deposits of the government sector rose by LE 1.3 billion or 2.1 percent, and those of the private business sector by LE 0.2 billion. Conversely, the deposits of the public business sector declined by LE 3.1 billion or 12.3 percent, and those of the external sector by LE 0.4 billion. Turning to foreign currency deposits, their fall was attributed to the retreat in the deposits of the government sector by the equivalent of LE 2.8 billion. The decrease was held back by the rise in the deposits of the household sector by LE 1.9 billion worth to register LE billion worth or 46.8 percent of the total deposits in foreign currencies at end of Sept Moreover, the deposits of the public business sector moved up by LE 0.4 billion worth and so did those of the external sector by LE 0.2 billion worth. % (5) (10) (15) Local Currency Rate of Change in Deposits by Sector during July/September Foreign Currencies 2011/ / / /2013 Government Sector Public Business Sector Private Business Sector Household Sector Foreign Sector 2/2/6 - Lending Activity Banks expanded their lending activity by only LE 1.7 billion or 0.3 percent in July/Sept Concurrently, total implemented investments rolled back by 2.9 percent (against LE 4.8 billion or 1.0 percent in the same period a year earlier). As a result, the total lending balances posted LE billion representing 36.0 percent of total assets and 48.5 percent of total deposits at end of Sept

51 Change in Bank Loans by Sector Local Currency 2011/ /2013 Foreign Local Currencies Currency (LE mn) Foreign Currencies Total 5282 (465) Government sector (535) (1240) (1156) 2579 Public business sector 1912 (15) 1481 (309) Private business sector (2436) 472 Household sector 3428 (522) 3163 (69) External sector (39) (2068) The lending and discount balances picked up by LE 1.1 billion or 0.3 percent to LE billion at the end of Sept The increase went to the household and the public business sectors. Loans received by the household sector inched up by LE 3.2 billion or 2.9 percent and the public business sector by LE 1.5 billion or 4.7 percent. In contrast, loans to the private business sector decreased by LE 2.4 billion and to the government sector by LE 1.2 billion. As for loan and discount balances in foreign currencies, they went up by only LE 0.6 billion worth or 0.4 percent to stand at LE billion worth at end of Sept The rise reflected the increase in the share of the government sector by LE 2.6 billion worth or 13.6 percent and of the private business sector by LE 0.5 billion worth. However, that rise was held back by the decline in loans to the external sector by LE 2.1 billion worth, to the public business sector by LE 0.3 billion worth and to the household sector by LE 0.1 billion worth. The relative distribution of loans by economic activity indicates that the manufacturing sector was the major recipient, with a share of 36.7 percent (in local and foreign currencies) at end of Sept The services sector came next with 26.8 percent, followed by the unclassified sectors including the household (25.5 percent), trade (9.8 percent), and agriculture (only 1.2 percent). LE bn Credit Facilities by Economic Activity At End of September 2012 Trade Manufacturing Agriculture Local Currency Services Unclassified Foreign Currencies

52 At end of Sept. 2012, loans and advances (excluding discounts) provided by banks by maturity registered LE billion, with a slight increase of LE 0.2 billion in the reporting period. The increase was an outcome of the rise in long-term loans (more than one year) by LE 4.5 billion or 1.7 percent (due to the growth in local currency loans by LE 6.1 billion and the fall in foreign currency loans by the equivalent of LE 1.6 billion). It also resulted from the drop in short-term loans (one year or less) by LE 4.3 billion or 1.8 percent as an effect of the contraction in local currency loans by LE 5.2 billion and the expansion in foreign currency loans by LE 0.9 billion worth. LE bn Loans & Advances by Banks Excluding Discounts (End of) One Year or Less Over One Year June 2012 Sept June 2012 Sept Local Currency Foreign Currencies

53 Non-Banking Financial Sector 3/1- Regulatory and Legislative Developments During July/Sept. 2012/2013, Presidential Decree No. 181 of 2012 was issued on 19/9/2012 deeming the Prime Minister as the minister responsible for enforcing the provisions of Law No. 10 of 2009 for Regulating Non-Banking Financial Markets and Instruments. On his part, the Prime Minister issued Decree No. 991 of 2012 on 27/9/2012 authorizing the Minister of Investment to assume the powers and duties of the minister responsible for enforcing the provisions of the said Law as of 3/8/2012. Within the framework of revising the rules of listing securities issued by small and medium enterprises (SMEs), Decision No. 49 of 2012 was issued by EFSA's BOD on 12/7/2012, amending Decision No. 81 of 2011 regarding these rules. According to these amendments, a new item (No. 9) was added to Article 2 of the aforementioned Decision, clarifying that the shares to be listed must not be issued by companies operating in non-banking financial markets. Aiming to promote trading on the Egyptian Exchange in a manner that better reflects the market s supply and demand, EFSA's Chairman approved on 14/8/2012 the new rules for holding the discovery session at the Exchange proposed by its BOD. The said rules aim at modifying the mechanism of calculating the price of securities in the discovery session as an opening price for securities in the trading session. The rules state that changing the discovery price of a security requires the participation of at least 25 percent of the total number of brokerage companies that trade on the security on the demand side and their equivalent on the supply side during the last three months, with a minimum of five companies from each side. It is worth mentioning that in March 2011, EFSA suspended the discovery session within the context of other precautionary measures that accompanied the resumption of trading at the Exchange on 23/3/2011. This came after a trading halt for 55 consecutive days amid the events of January Revolution. Moreover, on 28/8/2012, EFSA's Chairman approved the amendments proposed by the EGX's BOD to trading rules that are related to the closing price determinants. The said rules aim at reducing the tangible fluctuations in the prices of securities that ensue from scant trading. According to the new Source: EFSA, and EGX's monthly reports.

54 amendments, the amount of shares set for the closing price shall not be less than the equivalent of 0.5 percent of the daily average of the trading value of each share during the last three months, provided that the value of these shares shall not be less than ten thousand Egyptian pounds or their equivalent in foreign currencies, without prejudice to the provisions of Article 97 of the Executive Regulations of the Capital Market Law No. 95 of In addition, the effect of private transactions shall be excluded when calculating the average of the said trading. These averages shall be revised and recalculated every three months. The previous rules shall apply to small and medium enterprises listed on the tables of the Egyptian Exchange. Also, EFSA addressed the Exchange to modify the technical systems of trading to reflect the above-mentioned amendments and upon finishing this modification, EFSA shall be notified to set a date for putting these rules into effect. During the period under review, EFSA's Chairman issued Decision No. 677 of 2012 on 23/9/2012 amending some provisions of EFSA s Chairman Decision No 41 of 2007 regarding the regulations of registering financial advisors with EFSA. As part of its efforts to provide medium- and long-term financing instruments for small and medium enterprises, and to provide access to various sources of finance to promote these enterprises and increase their share in economic activity, EFSA approved on 26/9/2012 the private placement memorandum of the mutual fund established for developing small and medium enterprises, with a total value of LE 250 million. The said Fund is a closed fund whose certificates are offered to eligible investors through a private placement for equity participation in small and medium enterprises. Investment in the capital of this fund is confined to direct investment (medium - and long-term) in the capital of small and medium enterprises through capital increases, equity purchases, or the establishment of companies which practise their main activity in Egypt. The main sectors suggested for undertaking the Fund's activity include communications and information technology, as well as services, agricultural and industrial activities. On the other hand, EGX made a semi-annual review on its benchmark index (EGX 30) in July Accordingly, EGX announced the elimination of six companies from the index and the addition of six others. Also, some companies listed in the indices of EGX 70, EGX 100 and EGX 20 Capped and sectoral indices were changed. This procedure was effective as of the 1 st of August Also, a periodical annual review was conducted on S&P/EGX ESG index and some listed companies were changed.

55 Aiming to develop the work system of the stock market, EGX started as of August 2012 the actual operation of the Millennium Surveillance system. The system will help EGX better oversee the daily trading and all forms of abuse and violations of the regulatory rules of trading. 3/2- Stock Market Turning to the performance of the EGX, all price indices showed an increase in July/Sept. 2012/2013. In detail, EGX 30 rose by 23.6 percent, to points at end of September 2012 (against points at end of June 2012). Likewise, EGX 20 Capped increased 26.1 percent recording points (against points). EGX 70 moved up, as well, by 33.8 percent to points (against points), and so did EGX 100 by 26.9 percent to points (from points). Point June 2010 July Aug. Sectoral indicators The Benchmark EGX 30 Index Closing of the Egyptian Exchange in the wake of January 25 Revolution Sept. Oct. Nov. Dec. Jan Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan Feb. Mar. Apr. May June July Aug. Sept. In July/Sept. 2012/13, all sectoral indicators increased. Basic resources recorded the highest growth, with a pickup of 79.8 percent, followed by banks (38.9 percent), and real estate (37.1 percent). Chemicals came last with a rise of 15.0 percent.

56 Sector Sectoral Indicator at End of June 2012 Sectoral Indicator at End of Sept Change (%) July/Sept. 2012/13 Basic resources Banks Real estate Personal and household products Travel and leisure Financial services (exc.banks) Food and beverages Healthcare and pharmaceuticals Services, industrial goods and cars Construction and building materials Communications Chemicals The primary market: the number of new issues approved by EFSA during July/Sept. 2012/2013 reached 724, at a total value of LE 14.6 billion (against 738 issues, at a total value of LE 8.3 billion in the corresponding period a year earlier). Issues for new businesses reached 499 in number (68.9 percent of total issues), at a value of LE 1.8 billion. The number of issues for capital increases reached 225, with a total value of LE 12.8 billion (87.5 percent of total issues). The listing activity on the EGX showed that the number of listed companies rose to 213 at end of September 2012 (from 212 at end of June 2012). The nominal capital of these companies mounted by 0.4 percent to LE billion (from LE billion). Also, their market capitalization climbed by 19.4 percent to LE billion (against LE billion), on the back of the rise in the prices of most shares traded on the EGX. The value of issued and listed bonds surged by LE 25.2 billion or 8.8 percent in July/Sept. 2012/2013, posting LE billion at end of September 2012 (against LE billion at end of June 2012). This was attributed to the rise of LE 26.0 billion in the value of Egyptian treasury bonds (primary dealers), to LE billion or 95.5 percent of the total value of listed bonds at end of September In the meantime, corporate bonds fell by LE 0.4 billion. The secondary market: the three indicators of the secondary market (number of transactions, number of traded securities and their value) showed an increase. In detail, the number of transactions moved up by 371 thousand or 25.6

57 percent to 1820 thousand, and so did the number of traded securities (shares and bonds) by 6938 million or percent compared with the corresponding period, posting million papers. Their value increased, as well, by LE 18.8 billion or 58.6 percent, to LE 50.8 billion. Share transactions accounted for the bulk of trading on the EGX (81.4 percent in the period under review, against 82.1 percent in the corresponding period of the previous FY). Trading in bonds made up the remaining 18.6 percent of the total (against 17.9 percent). Trading in Securities July/September 2011/ /13 No. of Transactions (000s) A- Shares, bonds and mutual funds certificates (listed) B- Shares, bonds and mutual funds certificates (unlisted) C- Small and Medium Enterprises Market (NILEX)* 2 9 No. of Traded Securities (mn) A- Shares, bonds and mutual funds certificates (listed) B- Shares, bonds and mutual funds certificates (unlisted) C- Small and Medium Enterprises Market (NILEX)* Value of Transactions (LE mn) A- Shares, bonds and mutual funds certificates (listed) B- Shares, bonds and mutual funds certificates (unlisted) C- Small and Medium Enterprises Market (NILEX)* Source: EFSA- monthly reports of the EGX. *Trading on NILEX started on June 3, Turning to the market of small and medium enterprises (NILEX), the number of listed companies reached 22, and the market capitalization of listed shares on NILEX amounted to LE 1.3 billion at end of September Traded securities amounted to 23 million papers, through 9434 transactions, with a total value of LE 73 million. Investors' Transactions Foreigners' transactions on EGX stepped up by 18.3 percent during July/Sept. 2012/2013 compared with the corresponding period of the preceding year, scoring LE 17.7 billion (against LE 14.9 billion). Their transactions resulted in net sales of LE 1.2 billion (against net purchases of LE 1.7 billion in the period of comparison).

58 LE bn Foreign Investors' Transactions during July/Sept Purchases Sales Net / /2013 Egyptians' trading on EGX accounted for 73.5 percent of total transactions in July/Sept. of FY 2012/2013. On the other hand, dealings of non- Arab foreigners represented 18.3 percent, while those of Arab investors made up 8.2 percent. Egyptian, Foreign & Arab Investors Transactions on the Stock Exchange during July/Sept. 2012/2013 Arabs 8.2% Foreigners (Excl. Arabs) 18.3% Egyptians 73.5% 3/3- Mutual Funds The number of mutual funds increased to 85 at end of September 2012 (83 open-end and 2 close-end), from 77 funds at end of September 2011 (74 open-end and 3 close-end).

59 Public Finance and Domestic Public Debt 4/1- Consolidated Fiscal Operations of the General Government In the light of the Ministry of Finance data on the state budget for FY 2012/2013, total expenditures are projected to rise by LE 43.2 billion or 8.8 percent above previous year's estimates, to record LE billion, with an increase of LE 62.8 billion or 13.3 percent above the actual figure of the previous FY. Likewise, budgeted revenues surged by LE 43.8 billion or 12.5 percent compared with the estimates of the previous FY, thus exceeding the actual figure of the previous FY by LE 89.9 billion or 29.6 percent, totaling LE billion. The budget for FY 2012/2013 has been outlined within the framework of a number of reform measures and decisions related to expenditures and revenues. On the expenditures side, these measures focused on the continued rationalization of all items of government spending, restructuring of subsidies for petroleum products, prevention of subsidy leakage and targeting of the eligible beneficiaries in all areas, and elimination of the overstock of merchandise goods. Moreover, measures were taken to expand infrastructure investments by encouraging the participation of the private sector, in an endeavor to alleviate the burdens on the budget and devise a mechanism to satisfy the increasing social needs for infrastructure services. On the revenues side, a high priority was given to widening the taxpayers base, combating tax evasion, and overhauling the structure of customs duties to reduce distortions. In parallel, actions were taken to shift to the value-added tax system within three years, and to issue new accounting rules for small enterprises to ensure their compliance with the tax system and prevent them from tax evasion. Furthermore, 20 percent of the monthly revenues of funds and private accounts are to be delivered to the Ministry of Finance during the present FY, in order to finance projects aimed at creating new job opportunities for youth and reducing unemployment. Moreover, instructions were given to move the financial accounts of those funds from commercial banks to the consolidated fiscal account, in order to tighten supervision over those funds. Hereunder are the estimates of the consolidated fiscal operations of the general government in FY 2012/2013, and a follow-up of their execution during the first quarter of the year:

60 - 52-4/1/1- Estimates of the Consolidated Fiscal Operations of the General Government The Budget Sector According to the estimates for FY 2012/2013, the budgeted public revenues totaled LE billion (22.4 percent of GDP), with a rise of some LE 89.9 billion or 29.6 percent above the actual figure of FY 2011/2012. Tax revenues were estimated at some LE billion (67.8 percent of total estimated revenues), of which taxes on income and business profits amounted to some LE billion (45.6 percent of total tax revenues). Tax proceeds from the petroleum sector were estimated at LE 45.8 billion (37.7 percent of taxes on income, business profits and the Suez Canal Authority). Tax revenues on goods and services are expected to record LE billion (37.7 percent of total tax revenues). Meanwhile, customs receipts and property taxes are projected to reach LE 20.8 billion (7.8 percent of the total tax revenues) and LE 19.4 billion (7.3 percent). Other revenues, mainly property income, proceeds of selling goods and services, investment finance, and other miscellaneous taxes are expected to record LE billion or 29.9 percent of total revenues. Moreover, current and capital grants were estimated at LE 9.0 billion for FY 2012/2013. On the other hand, total expenditures are expected to rise by LE 62.8 billion or 13.3 percent, to stand at LE billion (30.4 percent of total GDP), compared to the actual figure in the previous FY. Wages and compensations of public civil servants are expected to cost LE billion or 25.6 percent of total expenditures (including all periodical allowances and incentives, along with the cost of reforming the pay structure of the employees of the administrative system of the state). Interest payments on external and domestic public debt were estimated at LE billion, making up 25.0 percent of total expenditures. Subsidy allocations were estimated at LE billion or 21.2 percent of total expenditures, of which LE 70.0 billion (13.1 percent of the total) were earmarked for oil subsidies and LE 26.6 billion (5.0 percent) for commodity subsidies to counterbalance the higher world prices; while an amount of LE 16.4 billion was set aside for other subsidies. Moreover, grants, social benefits and other expenditures were estimated at some LE 32.9 billion, and defense outlays at about LE 27.3 billion.

61 Investments of the administrative system, local administration and service authorities were projected to post LE 55.6 billion (up by 54.8 percent over the actual figure of the preceding FY), mostly earmarked for the projects of the key sectors, in order to spur growth and reverse the economic slowdown. The Main Components of the Budget Sector (LE mn) 2007/ / / / / /13 Actual Actual Actual Actual Actual Estimate Total Revenues Total Expenditures Cash Deficit Net Acquisition of Financial Assets Overall Deficit Primary Deficit Against this background, the cash fiscal deficit in FY 2012/2013 was estimated at LE billion (8.0 percent of GDP), whereas the overall deficit was projected to reach LE billion (7.7 percent of GDP). Meanwhile, the primary budget deficit was expected to register LE 1.4 billion, thus reflecting the heavy burden of interest payments of domestic and external public debt (LE billion as already mentioned) and their effect on the budget deficit, given that interest payments on domestic public debt accounted for LE billion (23.9 percent of total government expenditure). % 40.0 Ratios of Estimated Expenditures, Revenues & Overall Deficit/GDP / / / / /2013 Actual Estimates Revenues Expenditures Overall Deficit

62 Budget Sector, NIB and SIFs As for the fiscal operations of the budget sector, SIFs and NIB, revenues and expenditures were expected to total LE billion and LE billion, respectively. Thus, the cash deficit was estimated at LE billion (6.8 percent of GDP), and the overall deficit at LE billion (6.9 percent of GDP). 4/1/2- Follow-up of the Execution of the Consolidated Fiscal Operations of the General Government The Budget Sector According to the preliminary data of the Ministry of Finance regarding the follow-up on the actual figures of the budget sector during the first quarter of FY 2012/2013, collected revenues totaled some LE 50.7 billion or 2.9 percent of GDP. Meanwhile, expenditures totaled LE billion or 5.8 percent of GDP. Therefore, the overall budget deficit posted LE 50.8 billion (2.9 percent of GDP) in the period under review. Ratios of Expenditures, Revenues & overall Deficit/GDP % (July/Sept.) / / / / /2013 Revenues Expenditures Overall Deficit Public revenues increased by LE 6.8 billion or 15.6 percent during the period under review (compared with LE 7.0 billion or 19.0 percent in the period of comparison). The pickup in revenues emanated from the surge in tax revenues by LE 10.3 billion or 34.6 percent above the period of comparison, thus exceeding the rise in total revenues by 51.0 percent. The rise in tax revenues came on the back of the pickup in the proceeds from taxes on income and profits by LE 7.3 billion (71.2 percent from the CBE), while the remainder % Ratios of Tax Revenues & Property Income/Total Public Revenues / / / / /2013 Tax Revenues (July/Sept.) Property Income

63 came from the other major items, specifically taxes on property and on goods and services, customs receipts, and other miscellaneous tax items. Meanwhile, the proceeds from property income shrank by LE 2.1 billion to LE 6.1 billion, as a result of the decreased receipts from the CBE and the Suez Canal Authority. Grants from foreign governments also rolled back by LE 3.1 billion during the period. The follow-up data on the actual implementation also showed that total expenditures increased by LE 16.9 billion or 20.1 percent, standing at LE billion (5.8 percent of GDP) in July/Sept. 2011/2012, compared with the same period of the previous FY. % Subsidies & Interest Payments / Total Expenditures (July / Sept.) / / / / /2013 Interest Subsidies A substantial part of the rise in expenditures (44.0 percent) was attributed to the surge in the interest payments of public debt (LE 7.5 billion or 30.9 percent), to score LE 31.6 billion (32.3 percent of current government spending). Hence, the state budget was overburdened with these payments. Expenditure on wages and compensations for employees also increased by LE 5.2 billion or 18.9 percent, standing at LE 32.4 billion. In other words, they swallowed the major part of 63.9 percent of revenues and made up 33.1 percent of current government spending. Also, subsidies, grants and social benefits scaled up by LE 5.2 billion or 30.3 percent, to LE 22.2 billion. The implemented investments stepped down by LE 1.2 billion during the reporting period, scoring LE 3.5 billion. Other miscellaneous expenditures also fell by LE 171 million. In the light of the above developments, the cash deficit of the budget sector recorded LE 50.7 billion during the reporting period, while the overall deficit posted LE 50.8 billion (2.9 percent of GDP). Budget Sector, NIB and SIFs Adding the fiscal operations of the NIB and SIFs to those of the budget sector, revenues should total LE 62.2 billion (3.6 percent of GDP), up by 22.8 percent.

64 Execution of the Consolidated Fiscal Operations of the General Government (Budget Sector, NIB and SIFs) (Total Revenues) Budget Sector Relative Structure July/Sept. 2012/2013 Budget Sector, NIB & SIFs Execution Ratio/Total Estimate for the Year % Relative Structure (LE bn) Execution Ratio/Total Estimate for the Year % % % Total Revenues Tax Revenues Taxes on Income and Profits From EGPC From SCA From CBE Other entities Payable by individuals Taxes on Property Taxes on Goods and Services Taxes on International Trade (customs) Other Taxes Grants Other Revenues Property Income Selling Proceeds of Goods and Services Financial Investments Other Source: Ministry of Finance. Percentages are calculated in terms of LE million. By adding the fiscal operations of SIFs and NIB to those of the budget sector, total expenditures should scale up by 14.5 percent, to LE billion (6.6 percent of GDP).

65 Execution of the Consolidated Fiscal Operations of the General Government (Budget Sector, NIB and SIFs) (Total Expenditures) Budget Sector Relative Structure July/Sept. 2012/2013 Budget Sector, NIB & SIFs Execution Ratio/Total Estimate for the Year % Relative Structure (LE bn) Execution Ratio/Total Estimate for the Year % % % Total Expenditures Wages and Compensations of Employees Purchases of Goods and Services Interest Subsidies, Grants and Social Benefits Subsidies Grants Social Benefits Others Other Expenditures Purchases of Non-Financial Assets (Investments) Source: Ministry of Finance. Percentages are calculated in terms of LE million. The cash deficit of the consolidated fiscal operations of the general government in the relevant period amounted to LE 53.8 billion. By adding the net acquisition of financial assets (LE 4.7 billion) to the cash deficit, the overall deficit should post LE 58.5 billion or 3.3 percent of GDP, constituting 48.3 percent of the overall deficit estimated for the whole year.

66 Execution of the Consolidated Fiscal Operations of the General Government (Budget Sector, NIB and SIFs) (Cash and Overall Deficit/Surplus and Financing Sources) Budget Sector July/Sept. 2012/2013 Relative Structure % Execution Ratio/Total Estimate for the Year % (LE bn) Relative Structure Total Expenditures Total Revenues Cash Deficit Net Acquisition of Financial assets Overall Deficit Finance Sources Domestic Finance Banking Finance Non-Banking Finance Blocked Account Used in Amortizing Part of the CBE Bonds External Borrowings Arrears Other Financing Effects for Eliminations Revaluation Differences Net Privatization Proceeds The Difference between the TBs Face and Present Value Reclassification Differences Unclassified Source: Ministry of Finance. Percentages are calculated in terms of LE million. Less than LE 1 million. %

67 - 59-4/2- Domestic Public Debt At end of September 2012, domestic public debt amounted to LE billion, or 74.9 percent of GDP at current market prices, up by LE 93.0 billion or 7.5 percent during July/September 2012/2013. It is to be noted that the balance of domestic public debt equals the sum of net domestic government debt, public economic authorities' debt and debt of the National Investment Bank (NIB), minus the intra-debt of public economic authorities and the government to NIB. Gross Domestic Debt at End of Sept (LE bn) Gross Domestic Debt Intra-Debt NIB Debt (Net) Net Debt of Economic Authorities 66.4 Net Domestic Debt of Government /2/1- Debt of the Government (Net) Net government domestic debt registered LE billion (60.7 percent of GDP) at end of September 2012, up by LE 89.1 billion or 9.0 percent in July/September 2012/2013. The rise was a confluence of the LE 45.5 billion increase in the balances of treasury bonds and bills, and the LE 31.7 billion decline in the net credit position of the government at the banking system (as government loans grew by LE 27.1 billion and its deposits dropped by LE 4.6 billion, respectively). Add to this the increase in government borrowing from other local entities by LE 11.7 billion and the rise of the issued Masri Dollar Certificate by LE 0.4 billion. In the meantime, credit facilities from the SIFs decreased by LE 0.2 billion.

68 Domestic Debt of the Government (Net) (LE bn) June 2012 Sept Change + (-) Balances at End of July/Sept. Value % Value % 2012/2013 Government Domestic Debt (Net) Balances of Bonds and Bills* Bonds and notes, of which: Tradable on the exchanges (90.3) Treasury bills Borrowing from Other Entities Credit Facilities from SIFs (0.2) - Masri Dollar Certificate Net Balances at the Banking System Credit facilities Deposits (-) (4.6) Net Government Domestic Debt/GDP (%) Source: Ministry of Finance, CBE and NIB. Ratios are calculated in terms of LE million. * Including treasury bonds; housing bonds; bonds denominated in foreign currencies with public commercial banks; the 5 percent ratio retained from profits of corporations subject to Law No. 97 for 1983 for the purchase of government bonds; holdings of resident financial institutions in Egypt (the banking system and insurance sector) of bonds floated abroad; and the SIFs bonds against the transfer of NIB debt to the Public Treasury. The LE 45.5 billion rise in the balance of government bonds and bills was an outcome of: A- The pickup in the balance of government bonds by LE 37.1 billion, to LE billion at end of September 2012, as a result of: 1- The LE 26.0 billion rise in the balance of Egyptian treasury bonds in the reporting period, due to: - The issuance of the 70 th tranche of three-year bonds on 3 July 2012, at a value of LE 2.0 billion and an annual interest rate of percent. Afterwards, the value of this tranche was increased by LE 13.0 billion (LE 4.0 billion in July 2012, LE 5.0 billion in August and LE 4.0 billion in September) on the same conditions of issuance, bringing its total value to LE 15.0 billion.

69 The issuance of the 71 st tranche of five-year bonds on 14 August 2012, at a value of LE 2.0 billion, and an annual interest rate of percent. The value of this tranche was then increased by LE 3.5 billion (LE 0.5 billion in August 2012 and LE 3.0 billion in September) on the same conditions of issuance, bringing its total value to LE 5.5 billion. - The issuance of the 72 nd tranche of seven-year bonds on 21 August 2012, at a value of LE 1.0 billion, and an annual interest rate of percent. The value of this tranche was increased by LE 3.0 billion in September 2012 on the same conditions of issuance, raising its total value to LE 4.0 billion. - The issuance of the 73 rd tranche of two-year bonds on 18 September 2012, at a value of LE 1.0 billion, and a variable interest rate of percent per annum. - Raising the value of the 67 th tranche of the seven-year bonds issued earlier on 3 April 2012 with an annual interest rate of percent, by LE 4.5 billion in July 2012 on the same conditions of issuance, thereby bringing its total value to LE 10.0 billion. - Increasing the value of the 68 th tranche of the ten-year bonds issued on 3 April 2012 with an annual interest rate of 17.0 percent, by LE 5.0 billion (LE 1.9 billion in July 2012, LE 1.1 billion in August, and LE 2.0 billion in September) on the same conditions of issuance, bringing its total value to LE 9.0 billion. - Raising the value of the 69 th tranche of the five-year bonds issued on 10 April 2012 with an annual interest rate of percent, by LE 3.0 billion in July 2012 on the same conditions of issuance, and in turn its total value amounted to LE 10.0 billion. - The redemption of Egyptian treasury bonds in the amount of LE 12.0 billion (the 43 rd tranche on 12 August 2012, at a value of LE 6.0 billion and the 18 th tranche on 20 September 2012, at a value of LE 6.0 billion). 2- The increase in the balance of SIFs bonds by LE 15.4 billion, as a result of issuing new bonds on 1/7/2012 (representing part of SIFs claims on the Ministry of Finance).

70 The decrease of LE 4.3 billion in the balance of bonds floated abroad (in both LE and US dollar), after the redemption of LE bonds in July B- The rise of the outstanding balance of treasury bills by LE 8.4 billion at end of September 2012, to stand at LE billion, as a result of: - The issuance of 363-day TBs in euro on 29 August 2012, at a value of LE 4.0 billion worth. - The rise of LE 0.2 billion worth in the outstanding balance of public treasury bills in US dollar, due to the change in exchange rates, bringing their balance to a total of LE 35.4 billion worth at end of September The rise of LE 4.2 billion in the outstanding balance of public treasury bills, issued in the Egyptian pound, thereby increasing the balance of these bills to LE billion at end of September 2012, compared with LE billion at end of June LE bn Net Domestic Debt of Government Sept June 2012 Sept % Treasury Bills Bonds & Other Credit Facilities Net Government Balances w ith the Banking System Ratio of Government Debt /GDP 4/2/2- Debt of Public Economic Authorities (Net) In July/Sept. 2012/2013, the debt of public economic authorities (net) scaled up by LE 3.3 billion to LE 66.4 billion at end of September The rise was a result of the increase in their net borrowing from the banking system by LE 2.1 billion (mainly due to the fall of LE 7.2 billion in their claims and of LE 9.3 billion in their deposits), along with the rise of LE 1.2 billion in their borrowing from the NIB.

71 - 63-4/2/3 - Debt of the NIB (Net) Net debt of NIB (including intra-debt) mounted by some LE 1.2 billion in July/Sept. 2012/2013, standing at LE billion at end of September The rise reflected the expansion in the total invested resources in the NIB by LE 0.3 billion to LE billion at end of September 2012, and the retreat in its deposits with the banking system by LE 0.9 billion. Resources of the NIB at End of Sept (LE bn) Dollar Dev elopment Bonds & Others 4.0 Social Insurance Funds 64.4 Uses of the NIB at End of Sept (LE bn) Investment in Treasury Bills & Bonds 13.3 Deposits with the Banking System 1.7 Post Office Sav ing Account 78.8 Proceeds of Inv estment Certificates & Accumulated Interest Loans to Economic Authorities 53.8 Loans to Holding Companies & Affiliate Units, Concessional Lending & Others /2/4- Intra-Debt The intra-debt of public economic authorities and the government to the NIB amounted to LE 67.1 billion at end of September 2012 (against LE 66.5 billion at end of June 2012). Loans granted by NIB to these authorities accounted for LE 53.8 billion, with an increase of LE 1.2 billion during July/Sept. 2012/2013. The NIB's investments in government securities (bills and bonds) registered LE 13.3 billion, down by LE 0.6 billion in the said period. 4/2/5- The Domestic Public Debt Service Burdens of the domestic public debt service on the state budget reached LE 48.6 billion during July/Sept. 2012/2013, with a rise of LE 22.0 billion compared with the corresponding period a year earlier. The rise was largely attributed to the increase in principle repayments by LE 14.6 billion, to LE 18.2 billion. Moreover, interest payments accelerated by some LE 7.4 billion, posting LE 30.4 billion. Hence, the respective ratios of debt service to GDP and to public revenues moved up to 2.7 percent and 95.9 percent, from 1.7 percent and 60.7 percent.

72 External Transactions 5/1- Foreign Exchange Market and NIRs The Central Bank of Egypt continued during the period its successful management of the forex market through the dollar interbank system. The weighted average of the US dollar interbank rate posted LE at end of September 2012 (against LE at end of June 2012) with a 0.6 percent drop in the value of the Egyptian pound. While the present Economic Review was under preparation, the Egyptian pound slided further (0.9 percent below the end of June 2012 level), thus bringing the US dollar exchange rate to LE at end of November In July/Sept. 2012/2013, the volume of transactions in the dollar interbank market amounted to US$ 7.7 billion (against US$ 10.6 billion in the previous corresponding period). Purchases and sales of private sector banks accounted for percent and percent, respectively. Thus, the total volume of trade in the interbank market posted US$ billion since its inception at the end of 2004 up to the end of September CBE resources of foreign currencies amounted to US$ 4.6 billion in July/September 2012/2013 (against US$ 5.1 billion in the previous corresponding period), while uses reached US$ 5.0 billion (against US$ 8.0 billion) US$ bn Volume of Dealing and Weighted Average of US Dollar Exchange Rate in the Interbank Market Q1_10/11 Q2_10/11 Q3_10/11 Q4_10/11 Q1_11/12 Q2_11/12 Q3_11/12 Q4_11/12 Q1_12/13 Volume of dealing (during Q) Exchange rate (end of Q) LE

73 NIR at the CBE dropped by US$ 0.5 billion or 3.2 percent in the reporting period, to US$ 15.0 billion, thus covering 3.3 months of merchandise imports at end of September 2012 (compared with US$ 15.5 billion and 3.2 months of merchandise imports at end of June 2012). At the time of preparing the Review at hand, the NIR remained unchanged at US$ 15.0 billion at end of November Net International Reserves & Months of Merchandise Imports (US$ bn) Months Jun-08 Sep-08 Jun-09 Sep-09 Jun-10 Sep-10 Jun-11 Sep-11 Jun-12 Sep-12 NIR NIR/Months of Merchandise Imports

74 - 66-5/2 - Balance of Payments In July/September 2012/2013, Egypt's transactions with the external world unfolded an overall BoP deficit of US$ million (against US$ 2.4 billion in the corresponding period a year earlier). This led to a retreat in net international reserves (NIR) at the CBE. US$ bn Main Items of BoP Q1 Q2 Q3 Q4 Q1 2011/ /2013 The lower BoP deficit came on the back of the decrease in the current account deficit, which registered US$ million (against US$ 2.2 billion), due to the increase in workers remittances by US$ million and the decrease in import payments by US$ million. Meanwhile, the capital and financial account achieved a net inflow of US$ million (down from US$ million). 5/2/1- Current Account In July/September 2012/2013, the current account deficit retreated by 87.2 percent to only US$ million (from US$ 2.2 billion) representing 0.1 percent of the GDP. This reflected the increase in current receipts by 8.0 percent to US$ 17.5 billion (from US$ 16.2 billion), and the drop in current payments by 3.3 percent to US$ 17.8 billion (from US$ 18.4 billion) due to the following developments: 5/2/1/1- Trade Balance Current Account Capital & Financial Account Ov erall Balance The trade deficit narrowed by 12.1 percent, posting US$ 6.9 billion, (representing 2.4 percent of the GDP), as a principal effect of the decrease in import payments by 5.2 percent to US$ 13.8 billion. In the meantime, exports mounted by 2.7 percent to US$ 6.9 billion. As a result, the coverage ratio of merchandise exports/merchandise imports scaled up from 46.4 percent to 50.2 percent. This will be illustrated in detail in the commodity structure of external trade. * Compiled in accordance with the IMF's BoP Manual, Fifth Edition, September 1993.

75 % The Coverage Ratio of Merchandise Exports to Merchandise Imports Q1 Q2 Q3 Q4 Q1 2011/ /2013 5/2/1/2 - Balance of Services and Income, and Net Transfers A) Balance of Services and Income: The services surplus improved by 4.7 percent to US$ 1.7 billion in the period under review (against US$ 1.6 billion). The rise came on the back of the increase in services receipts by 4.4 percent that exceeded the rise of 4.2 percent in services payments. This can be seen as follows: - Receipts from services and income increased 4.4 percent to US$ 5.6 billion because of the rise in the following items: Transportation receipts stepped up by 7.7 percent to US$ 2.2 billion due to the rise in the receipts of Egyptian navigation companies (freight) and the Egyptian aviation companies and despite the retreat of 5.3 percent in Suez Canal receipts to post only US$ 1.3 billion (against US$ 1.4 billion). This was ascribed to the appreciation in the US dollar exchange rate vis-à-vis the SDRs (the currency used in calculating the Suez Canal dues) by 4.3 percent and the slight decline in the net tonnage of ships transiting the Canal. Other services receipts scaled up by 13.3 percent to US$ million (against US$ million), as a result of the rise in the receipts of communication services, construction and contracting services and computer services. Government receipts mounted to US$ 81.3 million (from US$ 18.7 million), due to the rise in the other government receipts and the expenses of the foreign embassies in Egypt.

76 Investment income receipts slightly increased by 1.6 percent to US$ 56.9 million (from US$ 56.0 million), as an outcome of the rise in other investment income and the decrease in FDI and the portfolio investment income. Such an increase was held back by the decrease in tourism revenues by 2.3 percent to only US$ 2.6 billion (against US$ 2.7 billion). This was mainly ascribed to the fall in the number of tourist nights to 35.5 million nights (against 37.4 million nights), despite the increase in the average spending of a tourist per night to US$ 74.4 (against US$ 72.2). - Services payments and income US$ bn Balance of Services & Income Q1 Q2 Q3 Q4 Q1 2011/ /2013 Services Receipts Services Payments Balance of Services & Income Services payments went up by 4.2 percent, registering US$ 4.0 billion (against US$ 3.8 billion), reflecting the following increases: Other services payments rose 27.8 percent to US$ million, principally because of the increase in the royalties' payments and licensing fees, construction and contracting services, insurance services, computer services and magazines and newspapers subscription. Transportation payments scaled up by 39.2 percent to US$ million mainly due to the rise in the amounts transferred by foreign navigation companies (freight), and the amounts transferred for fixing planes in foreign ports and for renting planes from abroad. Travel payments surged by 15.5 percent to US$ million because of the rise in pilgrimage and omra fees, visa card payments, and payments of tourism companies and hotels abroad. (US$ mn) Investment Income Balance Q1 Q2 Q3 Q4 Q1 2011/ /2013 Income Receipts Income Payments Income Balance

77 On the other hand, each of the following items declined: Investment income payments scaled down by 9.0 percent to US$ 1.6 billion, primarily because of the decrease in the transfers of interest payments and dividends of bonds and securities, profit transfers of foreign oil companies and interests on external debt. Government expenditures retreated by 32.8 percent to US$ million, due to the decrease in other government expenditures and the expenses of Egyptian embassies abroad. US$ bn Services Balances (Surplus/Deficit) July/ Sept / / Transportation Balance Travel Balance Investment Balance Government Services Balance Other Services Balance B) Net Unrequited Transfers: Net unrequited current transfers surged by 21.8 percent to about US$ 4.9 billion (against US$ 4.0 billion), which had a positive role to play in driving down the current account deficit. The rise was owed to the following developments: The pickup of 21.3 percent in net private transfers, which recorded US$ 4.9 billion (against US$ 4.0 billion), mainly workers' remittances that soared by 20.6 percent to US$ 4.9 billion representing 1.7 percent of the GDP. (%) Egyptian Workers, Remittances as a Percentage of GDP Q1 Q2 Q3 Q4 Q1 2011/ /2013

78 The rise in net official transfers to US$ 40.4 million (against US$ 15.9 million), due to higher cash and commodity grants to the Egyptian government. Unrequited Current Transfers (Net) (US$ mn) July/Sept. Change 2011/ /2013 Value % Unrequited Current Transfers (Net) Official Transfers (Net)(a+b-c) a- Inflows of cash grants b- Other inflows of grants c- Outflows of official transfers Private Transfers (Net) (a+b-c) a- Workers' remittances b- Other transfers c- Private transfers abroad /2/2 - Capital and Financial Account In Q1 of FY 2012/2013, the net inflows of the capital and financial account declined to only US$ million (from US$ million), as a confluence of the following factors: 1- Portfolio investment in Egypt recorded a net outflow of US$ million (against US$ 1.7 billion) as an outcome of foreigners' transactions in Egyptian bonds and TBs that recorded US$ million (against US$ 1.7 billion) and net sales of shares at a value of US$ million (against US$ 15.2 million). 2- Foreign direct investment in Egypt achieved a net inflow of US$ million (against US$ million), because of the following: US$ bn Net Foreign Investment in Egypt Q1 Q2 Q3 Q4 Q1 2011/ /2013 Net FDI in Egypt Net Portfolio Investment in Egypt

79 Greenfield investments registered a net inflow of US$ million (against US$ million); and Investments in the oil sector unfolded a net outflow of US$ million (against US$ million). The following table illustrates the sectoral distribution of total FDI flows to Egypt in the period under review and the period of comparison. The data shows that the petroleum sector attracted the major share of those flows (74.4 percent), followed by manufacturing (6.7 percent); then services (4.6 percent), and finally construction (0.2 percent). (US$ mn) July/September Economic Activity Sectors 2011/2012 Share (%) 2012/2013 Share (%) Total FDI Flows to Egypt Oil Manufacturing Agriculture Construction Services, of which: Real estate Finance Tourism Communications & IT Other services Undistributed Other assets and liabilities (the change in banks foreign assets and liabilities; the CBE non-reserve foreign assets and foreign liabilities; and the counterpart to some items included in the current account) posted a net inflow of US$ 1.2 billion (against US$ 1.7 billion). 4- Medium- and long-term loans and facilities resulted in net repayments of US$ million (against US$ million), as an outcome of the decrease in total disbursements to US$ million (from US$ million), while total repayments maintained the same level of US$ million.

80 - 72-5/3- External Trade On the international arena, the data of the World Trade Organization (WTO) indicates that the volume of world merchandise trade shrank by 4.0 percent in July/Sept. 2012, registering some US$ 9.0 trillion (against US$ 9.4 trillion a year earlier). The downtrend was an outcome of the fall in the proceeds of world merchandise exports by 4.2 percent to US$ 4.4 trillion (against US$ 4.6 trillion), and in world import payments by 3.8 percent to US$ 4.5 trillion (against US$ 4.7 trillion). % Growth Rates of Global and Egyptian Trade July/September 2010/ / /2013 Global Trade Egyptian Trade On the domestic level, the volume of external trade fell during Q1 of FY 2012/13 by 2.7 percent to US$ 20.8 billion (against US$ 21.3 billion), constituting 7.1 percent of GDP, and 0.23 percent of total world external trade. That was ascribed to: - The decline in the volume of trade between Egypt and the EU countries by 8.5 percent affected by the economic slowdown in the euro area; Egypt's main trade partner (33.7 percent of total external trade). - The decline in the volume of trade between Egypt and the USA by 12.1 percent. Another affecting factor is the state of political instability in Egypt that cast its dark shadows on the size of economic activity. Hereunder are the main developments in the external trade:

81 - 73-5/3/1- Structure of Export Proceeds and Import Payments First: Export Proceeds by Degree of Processing Export proceeds rose by 2.7 percent to US$ 6.9 billion in July/Sept. 2012/13. That was ascribed to the increase in oil exports by 4.3 percent (48.5 percent of total exports), and in non-oil exports by 1.2 percent (51.5 percent of total exports). US$ bn Oil & Non-Oil Exports Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010/ / /2013 Oil exports Non-oil exports During the relevant quarter, exports of most merchandise groups rose as follows: raw materials by 11.2 percent; finished goods by 4.0 percent; and fuel and mineral oils by 2.6 percent. In the meantime, exports of semi-finished goods declined by 6.5 percent. US$ bn Fuel, mineral oils and products Exports by Degree of Processing July/September Raw materials Semi-finished goods Finished goods 2010/ / /2013 Table (5/2) in the Statistical Section shows the distribution of merchandise exports.

82 A) Fuel, Mineral Oils and Products (49.2 percent of total exports) Exports of fuel, mineral oils and products scaled up by 2.6 percent to US$ 3.4 billion in the period under review (against US$ 3.3 billion). Crude oil posted US$ 2.1 billion or 61.4 percent of the total exports of this group. B) Raw Materials (4.2 percent of total exports) Exports of raw materials rose by 11.2 percent to US$ million (against US$ million). The major part of these exports consisted of dairy products, eggs and honey (19.6 percent) with a rise of 33.7 percent; vegetables and plants (fresh, chilled or frozen); edible fruits and nuts; cotton; potatoes; and oil seeds, oleaginous fruits, and plants for medicinal and industrial uses. C) Semi-Finished Goods (7.5 percent of total exports) Exports of this group declined in the period under review by 6.5 percent to US$ million (against US$ million). The main exports were organic and inorganic chemicals (23.6 percent), despite their decline by 17.4 percent; cast iron, semi-finished products and rolled iron; plastics and products thereof; animal and vegetable fats, greases, and oils and their products; carbon; unalloyed aluminum; and tanning and dyeing extracts. D) Finished Goods (39.1 percent of total exports) Exports of this group picked up by 4.0 percent, recording US$ 2.7 billion (against US$ 2.6 billion). Foremost of these exports came fertilizers (8.2 percent) with a rise of 6.8 percent; ready-made clothes; cotton textiles; pharmaceuticals; miscellaneous edible preparations; soap, detergents and artificial wax; paper, cardboard paper and articles thereof; and iron and steel products. Second: Merchandise Imports by Degree of Use Merchandise imports fell by 5.2 percent to US$ 13.8 billion in July/Sept. 2012/13, as an outcome of the decline in non-oil imports by 6.9 percent (78.9 percent of total imports), and the rise in oil imports by 1.5 percent (21.1 percent of total imports). * Table (5/3) in the Statistical Section shows the distribution of merchandise imports.

83 US$ bn 0.0 Oil & Non-Oil Imports Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010/ / /2013 Oil imports Non-oil imports In July/Sept. 2012/13, imports of most merchandise groups dropped. In detail, imports of consumer goods fell by 7.3 percent; intermediate goods by 6.4 percent; and raw materials by 6.0 percent. In the meantime, imports of fuel, mineral oils and products slightly rose by 0.3 percent, and also the imports of investment goods by 0.1 percent. US$ bn Fuel, mineral oils & products Imports by Degree of Use July/September Raw materials Intermediate goods Investment goods Consumer goods 2010/ / /2013 A) Fuel, Mineral Oils and Products (15.6 percent of total imports) Imports of fuel, mineral oils and products slightly rose by 0.3 percent to US$ 2.2 billion, as oil products edged up by 3.2 percent, constituting 98.8 percent of the total imports of this group. B) Raw Materials (15.1 percent of total imports) Imports of raw materials declined by 6.0 percent to US$ 2.1 billion (against US$ 2.2 billion a year earlier), because of the decline in wheat imports by 9.7 percent, iron ore by 9.0 percent, maize by 8.1 percent, and crude oil by 2.9 percent.

84 C) Intermediate Goods (28.3 percent of total imports) Imports of intermediate goods scaled down by 6.4 percent to US$ 3.9 billion in Q1 of FY 2012/13 (against US$ 4.2 billion). That was attributed to the plunge in the imports of cement by 89.7 percent; glass and articles thereof by 47.0 percent; tanning extracts by 28.5 percent; and animal and vegetable fats, greases, oils and products by 24.6 percent. D) Investment Goods (17.1 percent of total imports) Imports of this group slightly increased by 0.1 percent to US$ 2.4 billion, due to the rise in the imports of cargo transport vehicles by 76.5 percent, passenger vehicles by 67.3 percent; and pumps, fans, and parts thereof by 41.8 percent. In the meantime, declines were observed in the imports of some goods, especially bulldozers and cranes and parts thereof by 46.1 percent; printing machinery and parts thereof by 25.2 percent; and agricultural machinery by 23.2 percent. E) Consumer Goods (23.1 percent of total imports) Imports of this group scaled down by 7.3 percent, owing to the fall in the imports of non-durable goods by 12.9 percent to US$ 2.4 billion (against US$ 2.8 billion). The imports of the following non-durable goods were essentially behind the decline: vegetables, plants, roots, and tubers (down by 86.0 percent); soap, detergents and artificial wax (down by 62.5 percent); and residues of food industries (a fall of 33.0 percent). By contrast, imports of durable consumer goods mounted by 17.2 percent, posting US$ million (against US$ million). That was chiefly the result of the pickup in the imports of passenger cars by 78.7 percent; and household refrigerators and electric freezers by 25.6 percent. 5/3/2 - Sectoral Distribution of Merchandise Transactions On the level of economic sectors, the shares of the public and investment sectors in trade exchange declined to 29.0 percent and 7.4 percent, respectively, against 30.0 percent and 9.5 percent. On the other hand, the contribution of the private sector stepped up to 63.6 percent (against 60.5 percent).

85 Volume of Trade US$ 20.8 bn Public Sec. US$ 6.0 bn Private sec. US$ 13.3 bn Investment Sec. US$ 1.5 bn Exports US$ 2.9 bn Imports US$ 3.1 bn Exports US$ 3.4 bn Imports US$ 9.9 bn Exports US$ 0.7 bn Imports US$ 0.8 bn As for the sectoral distribution of merchandise exports, the private sector accounted for 48.5 percent, followed by the public sector with a share of 41.6 percent and the investment sector with 9.9 percent. As for import payments, the private sector was the major importer with a share of 71.3 percent, followed by the public sector with 22.6 percent and the investment sector with 6.1 percent. Hereunder is a detailed review of external trade by economic sectors: A- The Private Sector Export proceeds of the private sector went up by 10.1 percent, registering US$ 3.4 billion (against US$ 3.1 billion). Finished goods constituted 71.0 percent of the total exports of this sector. The main exports were oil products; glass and articles thereof; tobacco; cement; organic and inorganic chemicals; plastics and articles thereof; miscellaneous edible preparations; and iron and steel products. Merchandise imports of this sector recorded a slight decline of 0.1 percent, amounting to US$ 9.9 billion, because of the drop in the merchandise imports of raw materials by 5.2 percent, investment goods by 5.9 percent and consumer goods by 1.5 percent.

86 B- The Public Sector The export proceeds of the public sector fell by 5.3 percent, scoring US$ 2.9 billion (41.6 percent of total export proceeds), against US$ 3.1 billion. The main exports were crude oil and its products (96.3 percent); rubber and its products; unalloyed aluminum; glass and articles thereof; cotton and cotton yarn; milk and condensed cream; and miscellaneous edible preparations. Moreover, merchandise imports of the public sector decreased by 6.8 percent, to US$ 3.1 billion (against US$ 3.3 billion). That was ascribed to the fall in the merchandise imports of intermediate goods by 25.2 percent; raw materials by 22.9 percent; and fuel, mineral oils and products by 4.7 percent. However, the merchandise imports of consumer goods went up by 51.1 percent and investment goods by 40.4 percent. C-The Investment Sector The export proceeds of this sector rose by 5.7 percent to US$ million (against US$ million), representing 9.9 percent of total export proceeds. The main exports were oil products (45.9 percent); cement; cast iron, semi-finished goods and rolled iron; tobacco; organic and inorganic chemicals; and carpets and floor coverings. The merchandise imports of this sector stepped down by 38.2 percent to US$ million (against US$ 1.4 billion). That was attributed to the decrease in the merchandise imports of consumer goods by 71.5 percent; intermediate goods by 67.0 percent; and the two groups of fuel, mineral oils and products; and investment goods by 4.9 percent each. In contrast, the merchandise imports of raw materials scaled up by 21.0 percent. 5/3/3 - Geographical Distribution of Merchandise Transactions The trade exchange between Egypt and most economic groups declined in the period under review. As such, the trade exchange between Egypt and the EU fell by 8.5 percent, the USA by 12.1 percent, and the African countries by 3.9 percent. On the other hand, trade exchange between Egypt and the Russian Federation rose by 71.0 percent, and Australia and countries of other regions by 16.4 percent. Table (5/4) in the Statistical Section illustrates the geographical distribution of imports and exports.

87 US$ bn EU Other European countries Volume of Trade by Geographical Distribution July/September Russian Fed. & C.I.S USA Arab count. Asian count. African count. 2011/ /2013 Australia & other count. The order of countries in terms of the relative importance of trade exchange with Egypt ran as follows: Italy ranked first (10.1 percent), followed by the USA (9.8 percent), China (5.4 percent), the UAE (5.3 percent) and Germany (4.9 percent). The geographical distribution of export proceeds in July/Sept. 2012/13 illustrated that the EU came in the lead (39.1 percent), followed by the Arab countries (19.4 percent), and the USA (16.1 percent). As for merchandise imports, the EU came first as well (31.0 percent), followed by the Asian countries (20.0 percent), and the Arab countries (17.8 percent). The following chart illustrates the relative importance of export proceeds and import payments by economic groups: African Countries 1.0% Asian Countries 20.0% Imports by Geographical Distribution July/September 2012/2013 Australia & Other Countries 9.9% Arab Countries 17.8% USA 6.6% Russian Federation & C.I.S 4.3% EU 31.0% Other European Countries 9.4% Exports by Geographical Distribution July/September 2012/2013 African Asian Countries Countries 1.6% 14.9% Arab Countries 19.4% USA 16.1% Australia & Other Countries 2.9% Russian Federation & C.I.S 0.3% EU 39.1% Other European Countries 5.7%

88 As for the major markets for Egyptian exports, Italy came in the forefront, followed by the USA, India, the UAE, and the UK, with a combined share of 52.8 percent of total merchandise exports. In respect of Egyptian imports, China was the main exporter, followed by the USA, Germany, the UAE, and Switzerland with a combined share of 30.5 percent of total imports. 5/3/4 - Breakdown of Trade by Main Commodity In the first quarter of FY 2012/13, the volume of trade of all merchandise groups declined, except for crude oil and its products; vehicles, cars and means of transportation; and cereals. Crude oil and its products contributed 30.3 percent, followed by chemicals (9.2 percent) and foodstuffs (8.0 percent). Volume of Trade by Main Commodities US$ bn Oil Foodstuffs (excl. cereals) Cotton & textiles July/September Cereals Chemicals Machinery & electric equipment Base metals 2011/ /2013 Vehicles & cars The breakdown of export proceeds by main commodity showed that crude oil and its products came first, accounting for 48.5 percent of total exports, followed by chemicals (9.2 percent) and cotton (7.0 percent). US$ bn Oil Foodstuffs (excl. cereals) Exports by Main Commodities July/September Cotton & textiles Cereals Chemicals Machinery & electric equipment Base metals Vehicles & cars 2011/ /2013

89 As for imports by main commodity, crude oil and its products came in the lead with a share of 21.1 percent, followed by machinery, and electric appliances and parts thereof with 10.3 percent, and foodstuffs (excluding cereals) with 9.9 percent. US$ bn Oil Foodstuffs (excl. cereals) Imports by Main Commodities July/September Cotton & textiles Cereals Chemicals Machinery & electric equipment Base metals Vehicles & cars 2011/ /2013

90 According to international finance data in July/September 2012/2013, net resources from abroad decreased by US$ million, registering a net outflow of US$ million (against US$ 1.1 billion in the respective quarter a year earlier). Likewise, net flows of interest payments and profit transfers dropped by US$ million, posting an outflow of US$ 1.6 billion /4- International Finance (US$ mn) Net International Finance from Abroad July / September /2011 (2858.6) 2011/2012 (2209.4) 2012/2013 Net Interest Pay ments and Prof it Transf ers Total Net Resources f rom Abroad Net International Finance f rom Abroad (against US$ 1.7 billion). Accordingly, net international finance recorded an outflow of US$ 2.2 billion (compared with US$ 2.9 billion in the period of comparison). Change (-) International Finance from Abroad (Net) (US$ mn) July/Sept. 2011/ /13 + Net International Finance from Abroad (2858.6) (2209.4) A- Net Resources from Abroad (1129.2) (640.4) Direct investment in Egypt (net) (332.0) 2- Portfolio investment in Egypt (net) (1729.9) (327.1) Direct investment abroad (79.0) (25.3) Portfolio investment abroad (net) (63.0) (1.1) Official grants (net) External borrowing (net) (435.4) (722.1) B- Net Interest Payments and Profit Transfers (1729.4) (1569.0) Net profit transfers of FDI (1366.0) (1319.6) Net profit transfers of portfolio investment (208.8) (117.5) Interest on external loans and facilities (184.1) (170.5) Net interest on bank deposits abroad Provisional. (A) Net Inflows of External Resources: - During July/September of FY 2012/2013, net foreign investments (direct and portfolio) in Egypt [inflows, chart (A)] achieved a net outflow of US$ million (compared with US$ 1.3 billion in the period of comparison). That decline stemmed primarily from the drop in the net

91 outflow of portfolio investment to US$ million (against US$ 1.7 billion). This is besides the decline in net FDI in Egypt by US$ million, to register a net inflow of US$ million (against US$ million). - Net foreign investments abroad (direct and portfolio) [outflows, chart (B)] went down by US$ million, reaching US$ 26.4 million. That was attributable both to the decline in FDI abroad by US$ 53.7 million, to reach merely US$ 25.3 million, and to the drop in portfolio investment abroad by US$ 61.9 million, to US$ 1.1 million. The following chart illustrates the developments in net foreign investments (direct and portfolio) in Egypt and abroad in July/Sept. 2012/2013, compared with the same period in the last three years. US$ m n (1500) (3500) (5500) Foreign Investment Flows in Egypt July/September (1729.9) (327.1) 2009/ / / /2013 Net Direct Investment in Egypt Net Portfolio Investment in Egypt Chart (A) US$ mn 100 Foreign Investment Flows Abroad July/September (1.1) (25.3) - External borrowing (medium-, long- and short-term loans and facilities) realized net repayments of US$ million (compared with net disbursements of US$ million in the period of comparison) owing to the fall in the disbursements of loans and facilities in the period under review. - Net official grants scaled up by US$ 24.5 million, to US$ 40.4 million in July/Sept. 2012/ (50) (100) (150) (200) (250) (300) (41.2) (94.2) (63.0) (79.0) 2009/ / / /2013 Direct Investment Abroad Net Portfolio Investment Abroad Chart (B) Including net foreign investments in Egyptian Treasury bills in the amount of US$ 4.0 billion (outflows), in addition to net sales of foreigners dealings in the stock market (US$ 1.1 billion).

92 (200) (500) US$ mn Flows of Official Grants and External Borrowing July/September / / / / Official grants Net external borrow ing (B) Net flows of interest payments and profit transfers: Given the returns of capital flows transferred abroad (net basis); namely inflows minus outflows, which are represented in interest payments on external loans and facilities, and foreign (direct and portfolio) investment, a decline of US$ million was observed in the net flows of interest payments and profit transfers of direct and indirect investment, resulting in an outflow of US$ 1.6 billion (against US$ 1.7 billion). The drop reflected mainly the fall in net profit transfers of portfolio investments, which posted a net outflow of US$ million (against US$ million). 5/4/1- Foreign Direct Investment (FDI) in Egypt In July/Sept. 2012/2013, net FDI in Egypt contracted by US$ million, registering a net inflow of US$ million (compared with US$ million in the corresponding period a year earlier). This was mainly ascribed to the 16.4 percent drop in total investment inflows, which outpaced the decline in capital repatriation (4.9 percent). The breakdown of investment inflows shows that flows from the EU witnessed the largest decline (US$ million), reaching merely US$ 1.2 billion, of which 74.1 percent went to petroleum investments (against US$ 2.1 billion). Along the same line, inflows from the Arab countries fell by some US$ FDI is a category of international investment that implies the existence of a long-term relationship (between a resident in a given economy and an enterprise resident in another economy), in which a direct investor owns 10 percent or more of the ordinary shares or voting power in an incorporated enterprise, or its equivalent in an unincorporated enterprise. (Source: IMF's BOP Manual, Fifth Edition).

93 million, to US$ million (mostly greenfield investments that made up 63.0 percent). However, investments from the USA rose by some US$ million, to US$ million, and also from the rest of the world by US$ million, to US$ million. The sectoral distribution of total FDI inflows to Egypt in July/Sept. 2012/2013 revealed that the petroleum sector received 74.4 percent of the total. The bulk of these flows came from the European Union (mainly UK and Belgium), followed by the USA, then the Arab countries (chiefly UAE), and the rest of the world (led by Ukraine). The manufacturing sector came next, with a share of 6.7 percent, followed by the services sector with 4.6 percent. Total FDI in Egypt by Economic Sector July / September 2012/2013 (US$ mn) Undistributed Communications & IT 4.4 Real Estate 14.8 Petroleum Construction & Building 3.9 Services Manufacturing Agriculture 0.2 Finance 70.2 Other Services 11.9 Tourism 1.7 The breakdown of FDI inflows to Egypt by investment purpose showed that petroleum investments ranked first as mentioned earlier, amounting to US$ 1.7 billion (74.4 percent of the total). Greenfield investments came next with a share of US$ million (24.9 percent), then the real estate investments with US$ 14.8 million (0.7 percent). US$ m n Net FDI in Egypt July / September (1000.0) (3000.0) 2009/ / / /2013 Outf lows Proceeds f rom selling local enitities to non-residents Petroleum sector inv estments Transf ers f or buy ing real estates in Egy pt by non-residents Greenf ield Inv estment Net Foreign Direct Investment in Egypt