Hot air balloon crash intensifies pressure on Egypt's fragile economy

Tourism minister says 'those proven responsible for the accident will receive severe punishment'. Bradley Hope reports from Cairo

A rescue official walks near the wreckage of a hot air balloon that crashed in Luxor on Tuesday. Reuters

CAIRO // A hot air balloon floating over the tourist city of Luxor in Upper Egypt caught fire and exploded yesterday, killing 19 passengers and critically injuring two more as it tumbled into a sugar cane field.

The accident is expected to intensify pressure on Egypt's ailing economy, which depends on tourism at its ancient cities for 10 per cent of gross domestic product and millions of jobs. Visitors to Egypt have declined since 2010 because of wariness about visiting the country in the aftermath of the 2011 uprising that toppled the regime of Hosni Mubarak.

Egyptian public prosecutor Talaat Abdullah yesterday announced he had opened an investigation into the balloon crash and tourism minister Hisham Zazou issued a statement from Tehran, where he is on a state visit, saying that "those proven responsible for the accident will receive severe punishment".

Most of the passengers who died were from Japan, China, France, Britain and Hungary, according to the minister of health. The pilot of the balloon survived by jumping from the basket when it was 10 to 15 metres from the ground, according to an interview by Reuters with the head of a balloon operator association in Luxor, Ahmed Aboud. Two British survivors were also taken to a hospital but one died later, according to travel firm Thomas Cook.

The balloon was travelling at sunrise several kilometres from the Valley of the Kings, a sprawling campus of burial tombs that is one of Egypt's most famous ancient sites, when a pipe connecting gas canisters to the burner exploded, according to Mr Aboud. Christopher Michel, a photographer who was travelling on another balloon, told Reuters he heard a "loud explosion" and saw smoke.

The hot air balloon trade in Luxor was supposed to have undergone a major safety overhaul after an accident in 2009, when 16 people were injured in a balloon collision with a mobile service tower. The government grounded flights, changed flying regulations in Luxor and ordered pilots to get extra training.

Yesterday's accident comes at a time of political turbulence and divisiveness in Egypt, which has been exacerbated by the deteriorating economy. Any damage to the tourism industry by the balloon accident will only make the situation worse, economists said.

Unemployment has risen to 13 per cent, from 9.7 per cent in 2010, according to the International Monetary Fund. The value of the currency against the dollar has declined by about 10 per cent and foreign reserves have declined to a critical level, only covering about three months of imports. Fuel products are in short supply and the budget deficit is widening.

"There has been a profound interruption of economic activity because of the instability," said Alaa El Shazly, a professor of economics at Cairo University. "It's as if you removed the lid on something that was suppressed for a long time. There will be no chance for a recovery if the political situation remains this way."

Some of Egypt's immediate problems could be assuaged by securing a planned US$4.8 billion (Dh17.6bn) loan from the International Monetary Fund, but an agreement has been repeatedly delayed as the government of president Mohammed Morsi recalibrates its economic plan to avoid angering the public with austerity measures.

Obtaining the loan would also unlock billions of dollars in other aid from Europe, the US and development funds, which want the IMF's seal of approval on Egypt's economic agenda before signing agreements.

Finance minister Al Morsi Al Hegazy told reporters in Cairo yesterday that Egypt plans to send a revised economic reform plan to parliament this week before sending it on to the IMF for approval.

Political stability may prove more elusive. The National Salvation Front, an umbrella opposition group to Mr Morsi's presidency, announced yesterday it would boycott parliamentary elections scheduled for late April despite the president's entreaties for a "national dialogue". Revenues from tourism recovered slightly in 2012 earning the nation about $10bn in revenues, compared to $9bn in 2011. But these numbers are still nowhere near the $12.5bn earned in 2010, now regarded as the "golden year" for Egyptian tourism.

Last week, Egypt's ministry of planning said that the tourism sector generated $5.6bn in revenues from 6.3 million tourists in the first half of the current fiscal year 2012/13.

That represents a 12 per cent rise in revenues and 10 per cent rise in tourist numbers compared with the first half of the last fiscal year.

"Tensions will only get worse if tourism falls again," Professor El Shazly said. "We thought the transition period could be short, but it is proving to be a very long process."