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The US dollar is soaring to historic highs against Egypt's pound, tour guides speak of cancellations of up to 20 per cent and a persistent foreign currency crunch is hurting local industries as inflation remains at record levels.
Egypt's economic woes have intensified amid the Israel-Gaza war, now in its seventh week, which has given rise to a climate of uncertainty and fear.
The most populous Arab nation, home to 105 million people, borders both Gaza and Israel, and the conflict is raging not far from its popular Red Sea resorts in the southern Sinai Peninsula.
Egypt was struggling with its worst economic crisis in living memory when the war broke out last month. With a staggering $165 billion in foreign debt and an annual import bill of $90 billion, Egypt has recorded a drop of more than 50 per cent in the value of its currency since March 2022 while inflation has climbed close to 40 per cent.
The government has consistently blamed the coronavirus pandemic and the Russia-Ukraine war for its economic troubles.
Critics, however, say excessive borrowing, costly megaprojects they deem unnecessary or premature and heavy reliance on inflows of short-term portfolio investment contributed to the crisis.
The US dollar is trading this week at 51 pounds on the vibrant parallel or black market, an all-time high that is a whooping 20 pounds more than the bank rate, according to foreign currency traders.
Egypt's foreign currency crunch is of serious concern given that the country needs more than $28 billion to meet debt repayments in 2024.
The shortage has led to a $5 billion backlog of imports stuck at ports and problems for foreign companies repatriating dividends.
“I am buying dollars on the black market to give to the bank to get the ball rolling on clearing my imported materials stuck at the port in Alexandria. But the bank applies the official rate and I lose a great deal of money,” a Cairo-based industrialist old The National.
“Everything now is costing so much and becoming less and less profitable. I feel that I am still in business so as not to deprive my employees a livelihood at a time like this.”
A senior international banker based in Cairo echoed the industrialist's sentiment, saying the dollar crunch is taking a heavy toll on the economy as speculations intensify over a looming devaluation.
“It’s better to have dollars selling at 51 pounds or more than no dollars at 31 pounds,” he told The National. “A devaluation will create liquidity and will not have much impact on inflation because already everything is priced at the black market rate.”
It is too early to see the cancellations of tourist bookings reflected at popular tourist sites in Cairo like the Giza Pyramids or the Egyptian museum, which continue to be packed.
However, the cancellations are said to be obvious in popular Sinai destinations like Taba – which neighbours the Israeli port city of Eilat on the Gulf of Aqaba – Nuweiba, Dahab and Sharm El Sheikh.
“We are talking about maybe 20 per cent cancellations at this point,” a tour guide told The National.
“Tomorrow I start a nine-day tour with a group of European tourists. I was told the group had 28 people when I was offered the job. I learnt today there will only be 13.”
Tourism is a major source of foreign currency and accounts for about 15 per cent of gross domestic product.
The labour-intensive sector earned Egypt a record $13.63 billion in the financial year that ended on June 30, up from $10.75 billion a year earlier, according to central bank data.
Prime Minister Mostafa Madbouly shocked the nation last week when he declared that the foreign currency shortage was a “passing” crisis that will soon end.
He gave no reason for his optimistic assessment, which dominated television talk shows for days, with experts dismissing his announcement as mere talk.
“It's a populist announcement made for local consumption and is not backed by any evidence,” prominent economist Medhat Nafaa said in a television interview.
“I agree that crises pass, but at what cost?”
However, there is growing speculation that Gulf nations may be preparing to offer Egypt a multibillion-dollar rescue package, although there has been no word from any of them on their intention to do that.
Saudi Arabia, the UAE, Kuwait and Qatar – countries that have repeatedly come to the rescue of Egypt's economy over the years – already have a total of $29.9 billion in deposits with Egypt's central bank, and have lent another $16 billion in other forms of credit in recent years.
Last week, International Monetary Fund managing director Kristalina Georgieva said the Washington-based lender was “seriously considering” a possible augmentation of Egypt's $3 billion loan programme due to economic difficulties posed by the Gaza war.
The programme, signed late last year, has gone off track, with IMF reviews delayed and Egypt defying conditions set by the fund to embrace a genuinely flexible foreign exchange mechanism and reduce the state's massive economic footprint through the privatisation of government-owned enterprises.
The EU, meanwhile, is trying to help Egypt address the growing fallout from the Israel-Gaza conflic, according to Bloomberg.
European Commission President Ursula von der Leyen was in Cairo last weekend when she held talks with President Abdel Fattah El Sisi.
The EU wants to accelerate the process given Cairo’s strategic significance and concerns about increasing refugee flows, including from nations like Sudan, which has been devastated since April by fighting between the national army and a rival paramilitary.
The plan will include half a dozen priorities ranging from economy and investments to migration and security, sources told Bloomberg.
On the economic front, the European bloc wants to explore options with member states to help Egypt address its heavy debt burden.
In addition, the EU will propose an investment plan that would aim to mobilise €9 billion ($9.8 billion) in sectors such as digital, energy, agriculture and transport, punctuated by an investment forum planned for next spring.