The Israeli war on Gaza and its implications in the Red Sea have eroded the strong performance of one of the most robust US dollar-generating sectors — tourism, Leigh explained, responding to AO’s inquiries on the impacts of the Red Sea escalation on global trade flow, particularly to the Middle East.

This came during the hybrid press briefing the IMF held on Tuesday to launch its update on its flagship World Economic Outlook (WEO) report.

“Despite strong tourism performance overall in 2023, there has been a slowdown since the start of the conflict in Gaza, with hotel bookings coming down. And now on top of that, there's the escalation and the Red Sea attacks which may impact and are impacting foreign exchange inflows,” Leigh added.

According to Leigh, Egypt’s tourism sector generates about $700 million a month, making it a very important source of foreign currency for the country.

“So this is a challenge in terms of heightened uncertainty; this is also impacting investment prospects. External financing conditions are challenging already and with the sovereign spread in distressed territory since March, what is essential here is securing additional financing. This is going to make possible the reforms to bring inflation down and to restore growth,” he clarified to AO.

Thus, Leigh noted that the WEO report has expected Egypt’s real GDP growth to recover in the upcoming FY2024/2025 to 4.7 percent from the three percent expected in the current FY2023/2024, supported by IMF financing in the context of the current Extended Fund Facility (EFF) loan agreement with the country.

He said additional financing is critical for the country at the time being, adding that the IMF is in discussions with the Egyptian authorities on a set of policies that could support the completion of the first and second reviews of the EFF loan programme.

The IMF has downgraded its forecasts for Egypt’s real GDP growth in the current FY2023/2024 to three percent, down from the 3.6 percent it projected in October, according to the updated WEO report released on Tuesday.

An IMF mission is now in Egypt to discuss a possible additional financing package for the country that is suffering a severely challenging economic situation amid the repercussions of global and regional tensions.

Egypt is currently experiencing harsh economic woes — mainly the severe shortage of the US dollar, the rising prices of staples and services, and the weak foreign direct investments (FDI).

The IMF is to release its update on the regional economic outlook for the Middle East and Central Asia on Wednesday.