Fatma Mahmoud and her colleagues were scheduled to travel to London next month to attend the World Travel Market, an industry event dedicated to tourism and travel. But her plans were dealt a sharp blow by her bank’s decision last week to suspend transactions using Egyptian debit cards abroad.
“I was planning to use my debit card to pay for my hotel room and expenses in London. But the bank will only give me 800 pounds sterling 48 hours before the flight, provided that I can show my visa and ticket,” Mahmoud said, wondering how she will be able to reserve her plane ticket or book a room.
The majority of Egypt’s banks suspended hard-currency cash withdrawals and purchases made outside Egypt using debit cards last week, which means that the cards can now only be used within Egypt for purchases in Egyptian pounds.
Over the past week, most domestic and foreign banks operating in Egypt sent text messages to their customers to inform them that their debit cards would be restricted to domestic transactions only.
Before the new decision was enforced, customers could use their local-currency debit cards to purchase goods or services in foreign currencies abroad. This meant that the local banks had to make payments in foreign currencies on behalf of their customers.
Mahmoud is one of 24.3 million debit card holders in Egypt who will now have to deal with the new decision. Cairo resident Yehia Hassan has seen several of his subscriptions to international magazines and various online service interrupted because they were being debited from his debit card.
Other Egyptian bank customers, like Nour Mohsen, a Masters student in Germany, are in a more difficult situation. She uses her Egyptian debit card to cover her daily expenses abroad, but now she can no longer do that and must figure out an alternative.
“The move is meant to curb the drain of foreign currency from the country amid Egypt’s dollar crunch,” said an investment bank analyst who preferred to remain anonymous.
Mohamed Hassan, an investment funds director at Odin Investments, pointed out that transactions made using Egyptian debit cards are made in Egyptian pounds and that the banks must then step in to pay them in foreign currencies where needed without imposing additional costs on cardholders.
He noted that the new decision would ease the outflow of foreign currency. The move could also be a precursor to another potential currency devaluation, he said.
The decision comes at a time when the Egyptian economy is grappling with a foreign-currency shortage that has been exacerbated by the widening gap between the official exchange rate, at just under LE31 per dollar, and the parallel market rate, at about LE40-41 per dollar.
Executive Director of the International Monetary Fund (IMF) Kristalina Georgieva warned this month that Egypt’s foreign-exchange reserves would be depleted unless it initiated another devaluation of the pound.
Georgieva said that Egypt was “delaying the inevitable” by postponing another currency devaluation and that the longer this was put off, the more challenging the situation would become.
On 11 October, the credit-ratings agency Moody’s announced the downgrading of the ratings of five Egyptian banks by one notch with a stable outlook. The National Bank of Egypt, Banque Misr, the Cairo Bank, and the Commercial International Bank were downgraded to CAA1 from B.3. The Bank of Alexandria was downgraded from B2 to B3.
Earlier this month, Moody’s also lowered Egypt’s overall rating from B3 to Caa1, maintaining a stable outlook. The agency cited the deterioration of Egypt’s debt-bearing capacity and the ongoing shortage of foreign currency as the reasons behind the decision.
* A version of this article appears in print in the 19 October, 2023 edition of Al-Ahram Weekly
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