Tourism, remittances recover Egypt economy
CBE's adoption of these measures has led to a surge in remittances from Egyptian workers abroad and a revitalized tourism sector.
With remittances skyrocketing by over 51 percent to reach an impressive $29 billion in 2024, the decisions taken in March of that year to unify the exchange rate have played a crucial role in restoring trust in the official banking system.
Simultaneously, the tourism industry has rebounded, welcoming a record 15.7 million tourists. This provided a vital counterbalance to the losses from the Suez Canal revenues due to regional geopolitical tensions.
In this article, Ahram Online delves into the intricate relationship between these two economic lifelines, examining their contributions to Egypt's stability and growth while questioning the sustainability of these gains in the face of global economic challenges.
As Egypt navigates this complex terrain, understanding the dynamics of remittances and tourism becomes essential for envisioning a prosperous future.
"The March decisions were the key factor behind this recovery, but they differed on the sustainability of this growth and its impact on the macroeconomy," Walid Nagy, a banking expert and Egyptian Arab Land Bank vice president, and banking expert Marwa El-Shafie told Ahram Online.
How did the March decisions change the course of remittances?
Nagy asserted that the main reason for the surge in remittances is the unification of the exchange rate and eradicating the black market.
"These decisions removed price distortions and restored the confidence of Egyptians abroad in the official banking system. Many expatriates avoided transferring money through banks due to the large gap between the official rate and the black market. However, with this gap narrowed, there is no longer an incentive to use illegal channels," he stated.
El-Shafie concurred with this analysis but pointed out that external factors also played a significant role.
"In addition to the unification of the exchange rate, some Gulf and European countries have seen improvements in the income levels of Egyptian workers, which has increased their ability to send remittances. Therefore, we cannot view this growth in isolation from global economic factors,” she explained.
Can tourism sustainably compensate for Suez Canal losses?
Despite these gains, Egypt lost $7 billion in Suez Canal revenues due to regional geopolitical tensions, which could have significantly strained the economy had it not been for improved tourism performance.
Egypt received a record 15.7 million tourists in 2024, compared to 14.9 million in 2023.
"Tourism has succeeded in compensating some of the losses, recording its highest revenues ever in 2024, but it remains a sensitive sector affected by any global disruptions. Therefore, tourism cannot be the sole solution to compensate for the decline in dollar resources,” El-Shafie noted.
On his side, Nagy believes that the solution should be more comprehensive. He pointed out that the Egyptian economy relies on five main sources of foreign currency: exports, tourism, remittances from workers abroad, Suez Canal revenues, and foreign investments.
“We cannot rely on just one source; there must be a balance to ensure the sustainability of cash flows,” he affirmed.
Was the black market completely eliminated?
Nagy asserted that the currency parallel market (black market) no longer poses a real threat.
"In practical terms, there is no longer significant activity in the parallel market, but we must be cautious about imposing new restrictions on dollar availability, as this could lead to its reactivation,” he explained.
Meanwhile, El-Shafie said the black market may not have been completely wiped out, but it no longer affects the exchange rate.
"Eradicating the black market was an important step, but to ensure it does not return, we must continue to provide dollars easily through official channels and prevent any policies that might recreate the gap between prices," she added.
Fair price of EGP
The American multinational investment banking company Morgan Stanley recently reported that the fair price of the Egyptian pound should be around EGP 23/$1, compared to the current rate of over EGP 50/$1. Both El-Shafie and Nagy rejected this.
"The market determines the fair price based on supply and demand, and if the pound were undervalued in this way, we would have seen a massive influx of investors buying Egyptian assets, which has not happened,” El-Shafie said.
Nagy agreed but emphasized another point: "These estimates are unrealistic, and any attempt to impose a specific number as the fair price is an inaccurate assumption that could damage investor confidence.”
Inflation, foreign investments are critical for EGP's future
Since the spark of the Russian-Ukrainian war in March 2022, Egypt has witnessed unprecedented inflationary pressures, mainly driven by the disruption of global supply chains and the devaluation of the Egyptian pound.
Yet, inflation has significantly declined over the past four months, dropping to 12.8 percent for the headline annual inflation rate and 10 percent for the core rates in February.
Thus, Nagy asserted that controlling inflation could be sustainable through a rising flow of foreign direct investments.
"Foreign investments, not just loans or asset sales, are the true key to sustaining the pound's stability. We must focus on attracting long-term capital rather than relying on temporary solutions,” he clarified.
For her side, El-Shafie believes that curbing inflation is essential for economic stability.
"The CBE continues its tight monetary policies to rein in inflation, but there must be a balance to ensure that economic growth is not negatively affected," she stressed.
To mitigate the impact of inflation on citizens, the government announced a social support package worth EGP 200 billion (about $4 billion), which includes raising the minimum wage, increasing pensions, and supporting the most vulnerable groups.
"The social package was necessary to protect affected groups, but it is not a long-term solution. The real solution lies in regulating markets and increasing local production,” she noted.
How can Egypt achieve sustainable stability for EGP?
Nagy emphasized that ensuring stability requires a comprehensive strategy.
"We must focus on boosting exports, attracting foreign investments, and achieving trade balance. We cannot rely solely on remittances from Egyptians abroad as the only factor for the pound's stability," he stated.
Moreover, El-Shafie asserted the importance of enhancing regional cooperation.
"Trade agreements, such as cooperation with Morocco, can play a role in supporting the economy and reducing pressures on local currency, but this must be part of a comprehensive strategy,” she affirmed.
Real stability or temporary shift?
Despite the government's success in achieving relative stability for the EGP and enhancing foreign currency flows in 2024, the most important question remains: is this stability sustainable?
"If we do not enhance local production and provide sustainable sources of foreign currency, this stability may be temporary. The real challenge is building a robust economy capable of withstanding global crises,” El-Shafie said.
Nagy indicated that the solution lies in continuing economic reforms, asserting the necessity of leveraging this stability to promote growth, not just to protect the pound.
“A strong economy maintains currency stability, not the other way around,” he concluded.