Light at the end of the tunnel?

Sherine Abdel-Razek , Tuesday 21 Nov 2023

Sherine Abdel-Razek reports on developments that could improve foreign-currency flows to Egypt

IMF

 

While touring industrial facilities in 10 Ramadan city this week, Prime Minister Mustafa Madbouli said that in the light of the millions of dollars being poured into Egypt by foreign investors, Egypt’s foreign currency crisis could be coming to an end soon.

Cabinet statements following the visit noted that several new Chinese, Saudi, Turkish and Egyptian investments are planned for Obour and 10 Ramadan cities. The overall value of the agreed phases of these investments is around $1 billion.

While this falls short of the sum the government is looking for to close the gap between its foreign currency revenues and liabilities, the week witnessed a flow of news that made Madbouli’s optimistic statements more grounded.

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), told Reuters on Friday that the fund “was seriously considering a possible augmentation of Egypt’s $3 billion loan programme due to economic difficulties posed by the Israel-Hamas war.”

She added that the war is posing difficulties for neighbouring countries to Egypt, including Lebanon and Jordan, through the loss of tourism and higher energy costs.

While the IMF agreement was signed almost a year ago, Egypt has so far received only the first tranche, valued at $347 million, as the first and second reviews of the linked reforms have been delayed due to Egypt’s reluctance to further devalue the pound for fear of the consequent inflationary pressures and the slow pace of its privatisation programme.

Some experts put the increase at up to an additional $2 billion.

The statements coincided with the visit of European Commission chief Ursula von der Leyen to Egypt over the weekend and her meeting with President Abdel-Fattah Al-Sisi, an encounter that some foreign media outlets have said witnessed the discussion of $9 to $10 billion of European investments pouring into Egypt to help it manage its foreign debt.

Following the Covid-19 pandemic and the Russia-Ukraine war that left the Egyptian economy muddling through a wide array of challenges, the war on Gaza is believed to have hit the economy hard due to a decline in tourism revenues, foreign investment, and pricier oil imports.

This comes as the country’s foreign debts stand at more than $165 billion, and it needs more than $28 billion to meet the repayments due in 2024 alone.

The meeting concluded without any details being revealed about the promised investments, but observers believe Europe is keen to help keep Egypt’s economy afloat as a guarantee to limit illegal migration to Europe.

In June, the EU allocated about €80 million to Egypt for border management, search and rescue, and anti-smuggling operations because the country hosts a community of migrants representing up to 10 per cent of the population.

There has also been a change of heart among the Gulf countries towards extending financial support to Egypt.

A Saudi business delegation is currently visiting Cairo to attend the EGY-GCC Business Forum inaugurated on Wednesday by President Al-Sisi. In the couple of days preceding the forum news was leaked of multibillion dollar investments by members of the delegation.

The forum is scheduled to focus on investments in the manufacturing, renewable energy, agriculture, real estate, and tourism sectors. Units of Saudi Arabia’s Fawaz Abdulaziz Alhokair Company are said to be mulling investing $1.5 billion in Egypt in 2024.

Senior executives from the Al-Lami Group and Batterjee Holding are together planning around $550 million of investments in Egypt, the first in tourism and the real-estate sector while the second is eyeing pharmaceutical companies.

Both countries are considering partially paying for their trade in local currencies.

Other good news from the Gulf came last week with news from Asharq Business that Kuwait has renewed the $4 billion deposits it has had at the Central Bank of Egypt (CBE) since 2015. The deposits include two $2 billion tranches that mature in April and September of next year.

Out of Egypt’s $35.1 billion reserves, Saudi Arabia, the UAE, Qatar, Libya, and Kuwait have some $30 billion on deposit at the CBE, accounting for 85.5 per cent of the reserves.

Reuters quoted two anonymous Cairo-based bankers as saying they had received reports that the Gulf countries were discussing a possible financial rescue package involving further cash deposits and support for Egypt’s currency after any devaluation in the light of the Gaza war and the risk of regional turmoil spreading.

At the end of September, the CBE signed a currency swap agreement with the Central Bank of the UAE to allow for exchanges of the UAE dirham and the Egyptian pound with a nominal size of up to five billion dirhams and LE42 billion.

Egypt’s main foreign currency earner, the tourism sector, is fortunately showing resilience to the escalation in Gaza. A senior Ministry of Tourism official told Al-Arabiya news channel that despite the war Egypt will be able to meet its 15 million tourists target by the end of 2023, 32 per cent higher than in 2022.

Players in the industry told Reuters that the situation in Gaza has so far affected the popular Sinai destinations of Taba, Nuweiba, Dahab and Sharm El-Sheikh due to their proximity to Gaza but left the rest of the country and cultural tourism relatively unscathed.

Countrywide, net cancellations since 7 October stand at 10 to 12 per cent until the end of April net year, and Nile cruises between Luxor and Aswan during the peak period of Christmas and New Year are running at 80 to 90 per cent overall, an official in an hotel and resort management company told Reuters.


* A version of this article appears in print in the 23 November, 2023 edition of Al-Ahram Weekly

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