The Central Bank of Egypt’s (CBE) decision to float the pound in March encouraged Egyptian expatriates to resume transferring remittances to Egypt via the banks. Rising for the fourth month in a row, remittances recorded $2.6 billion in June, up by 65.9 per cent from $1.5 billion in June 2023 and reaching more than double their record of $1.3 billion in February this year.

Hassan Al-Sadi, an economics professor at Cairo University, attributes the surge in remittances to the fact that contract terminations in the Gulf countries usually take place in summer, which means that Egyptians working there whose contracts have ended typically transfer their savings to Egypt at this time.

The continuation, or lack thereof, of remittances on an ongoing basis will become clearer in the upcoming months as Egyptians working abroad return to their jobs, he added. He warned that a rise in the exchange rate on the parallel market could jeopardise the flow of remittances through the banks.

According to CBE figures, remittances totalled $22.1 billion in the fiscal year 2022-23, 30.7 per cent lower than the bumper figure of $31.9 billion in 2021-22. The drop was the result of the depreciation of the pound, the emergence of the parallel market for the dollar, elevated global inflation rates, high interest rates, fluctuations in oil prices, and the use of informal channels to transfer remittances.

Aya Zuhair, head of research at Zilla Capital, said the reasons prompting expatriates to avoid transferring remittances through official banking channels have diminished with the decline in the parallel market. Even if this persists, the gap between the rates it offers and those on the official market now stands at within 10 per cent, discouraging people from resorting to unofficial channels, she added.

The government has recognised the importance of remittances from Egyptian expatriates abroad, leading it to introduce initiatives such as the car initiative for expatriate workers and the possibility of purchasing property in Egypt in dollars.

These initiatives have boosted remittance inflows, Zuhair explained.

Mohamed Hassan, managing director of the Alpha Investment Management Company, concurred, saying that expatriate confidence in the official market had been renewed after the introduction of a fair valuation for the dollar after the exchange rate floatation in March.

As a result, remittance flows have picked up, bolstered by state initiatives aimed at leveraging remittances.

Opportunities to invest in dollars will help to maintain the flow of remittances, Hassan noted, adding that it is also expected that more investment funds will be introduced.

Egyptian banks are offering dollar certificates with some of highest returns worldwide at seven and nine per cent. Moreover, expatriates are being encouraged to open dollar accounts at national bank branches overseas.

Hassan predicts that even if another devaluation of the pound takes place, the difference in the price of the dollar between the official and black markets will not exceed 15 per cent, which in his opinion will not allow the parallel market to flourish.

Before March this year, the price disparity between the official and parallel markets was over 100 per cent.

During the dollar shortage, initiatives were introduced to incentivise expatriates to transfer their savings to Egypt through the banks. One such initiative concerned cars, permitting the duty-free import of personal cars provided that an equivalent dollar deposit covering fees and taxes was transferred to a government account for a five-year period without interest.

The deposit would then be reimbursed in Egyptian pounds at the prevailing exchange rate upon maturity.

Former finance minister Mohamed Maait said in April that payment orders issued under the initiative had reached $1.8 billion, while $767 million was transferred by Egyptians abroad. The latter figure has risen to $800 million, according to current Finance Minister Ahmed Kouchok.

The government has also been boosting digital channels to facilitate the transfer of remittances. The CBE has been in talks with some of its Arab counterparts, such as in Saudi Arabia, the UAE, and Jordan, to enable transfers via Instapay.

It has also joined the Buna platform, “a centralised cross-border payment system owned by the Arab Monetary Fund that aims at enabling financial institutions and central banks in the Arab region and beyond to send and receive cross-border payments in local and international currencies,” according to its website.

* A version of this article appears in print in the 15 August, 2024 edition of Al-Ahram Weekly