Dollar Inflows Surge to Egypt Amid Calls for Better Management

Egypt’s economy recently got a big boost from positive events, like the “Ras al-Hikma” deal in February and currency changes in March. However, challenges remain, with tourism, remittances, and the Suez Canal facing significant impacts from regional and global shifts.
Remittances from Egyptians abroad dropped by about 30%, and Suez Canal revenues fell by 50%. On the bright side, agricultural exports surged in early 2024, reaching $1.5 billion.
This uptick in exports reflects Egypt’s efforts to tap into this crucial revenue stream, especially with its currency devaluation making exports more competitive.
Since Egypt announced the $35 billion Ras al-Hikma deal on February 23, its economy has been on the upswing.
The black market slowed down immediately, and foreign investments in Egyptian bonds picked up after the currency flotation and a 6% interest rate hike on March 6.
Moreover, the International Monetary Fund (IMF) agreed to increase a financing loan from $3 billion to $8 billion.
The EU followed with loans, grants, and aids totaling $8.1 billion, and pledged to boost cooperation to a strategic partnership.
The World Bank offered a $6 billion financial support package for Egypt. Rating agencies Moody’s and Standard & Poor’s shifted their outlook on Egypt’s economy to positive.
Egypt also inked deals with seven international entities in energy and infrastructure, aiming for $40 billion in investments over 10 years for green projects. Italian group “Danieli” committed up to $4 billion to build a green steel complex in Egypt.
In mid-March, Prime Minister Mostafa Madbouly mentioned that remittances from Egyptians working abroad were slowly returning to normal levels, as the black market diminished due to similar prices with the official rate.
Goldman Sachs expects remittances to gradually increase, reaching around $30 billion this year and possibly exceeding $33 billion by 2027.
Data from the first quarter of the fiscal year 2023-2024 showed a nearly 30% drop in remittances from Egyptians abroad compared to the same period last year, down to $4.5 billion from about $6.4 billion. Egypt’s fiscal year runs from July 1 to June 30.
Sarah Saada, a macroeconomic analyst at CI Capital, predicted in a research note that remittances from Egyptians abroad would return to normal levels this year, reaching $31.6 billion.
The government aims to boost annual remittances from Egyptians abroad by 10% by 2030, reaching around $53 billion.
On March 25, Madbouly announced the government, with the banking sector’s help, managed to secure hard currency and streamline procedures for goods release from ports.
However, cargo owners are holding back, expecting the dollar’s value to drop before releasing goods and stabilizing prices.
Last Thursday, Egypt’s Finance Ministry raised 25 billion pounds from one-year treasury bills and 35 billion pounds from six-month treasury bills in an auction, according to the central bank’s website.
The average yield on the one-year bills dropped to 25.9% from 32.3% earlier this month, and on the six-month bills to 25.74% from 31.84%.
This reflects growing interest in short-term local debt among foreign investors since the currency flotation.
Additionally, the Central Bank of Egypt, acting for the Finance Ministry, sold three-year fixed-rate treasury bonds last week, yielding 25.46%, down from 26.23%, amounting to 2.9 billion pounds.
This follows a sharp decline in Egypt’s sovereign debt insurance costs, indicating increased confidence in its financial stability.
Speaking to Asharq Al-Awsat, economic expert Sherif Henry urged “prudent management” of dollar cash flows and avoiding fixing the exchange rate after receiving an IMF loan, as seen in the past.
Egypt is set to receive the first installment of the IMF loan, $820 million, next week, according to Madbouly’s statements.
The IMF will hold a press conference on Monday to officially announce the loan increase and its vision for Egypt’s economy.
Henry stressed the need for Egypt to focus on key sectors like industry, tourism, and exports, seizing the current momentum.

The United States on Thursday called on Israel to extend its cooperation with Palestinian banks for another year, to avoid blocking vital transactions in the occupied West Bank.

"I am glad that Israel has allowed its banks to continue cooperating with Palestinian banks, but I remain convinced that a one-year extension of the waiver to facilitate this cooperation is needed," US Treasury Secretary Janet Yellen said Thursday, on the sidelines of a meeting of G20 finance ministers in Rio de Janeiro.

In May, Israeli Finance Minister Bezalel Smotrich threatened to cut off a vital banking channel between Israel and the West Bank in response to three European countries recognizing the State of Palestine.

On June 30, however, Smotrich extended a waiver that allows cooperation between Israel's banking system and Palestinian banks in the occupied West Bank for four months, according to Israeli media, according to AFP.

The Times of Israel newspaper reported that the decision on the waiver was made at a cabinet meeting in a "move that saw Israel legalize several West Bank settlement outposts."

The waiver was due to expire at the end of June, and the extension permitted Israeli banks to process payments for salaries and services to the Palestinian Authority in shekels, averting a blow to a Palestinian economy already devastated by the war in Gaza.

The Israeli threat raised serious concerns in the United States, which said at the time it feared "a humanitarian crisis" if banking ties were cut.

According to Washington, these banking channels are key to nearly $8 billion of imports from Israel to the West Bank, including electricity, water, fuel and food.

Dollar Inflows Surge to Egypt Amid Calls for Better Management