Already dealing with a deep disaster, Egypt’s financial system seems poised to take a success from Israel’s warfare on Gaza and the spiralling tensions within the Crimson Sea, analysts have mentioned.
At present on “life support”, Egypt’s deteriorating financial system suffers from rising public debt now at greater than 90 p.c of its gross home product (GDP), capital flight and the forex’s fall towards the US greenback.
Now, these challenges are being compounded by the warfare, because it edges nearer and nearer to Egypt’s border, with a big chunk of Gaza’s inhabitants pushed into Rafah, after 4 months of displacement on account of Israel’s relentless assaults. Tourism and the Suez Canal are two of Egypt’s main sources of overseas trade.
Bleak outlook for tourism
Egypt’s pyramids, museums, resorts and monuments appeal to guests from everywhere in the world and have lengthy made tourism a significant supply of nationwide revenue. In 2022, roughly three million Egyptians labored within the tourism business.
Earlier than Israel’s warfare on Gaza erupted, Egypt’s tourism sector was already struggling to recuperate from COVID-19. Nevertheless it gave the impression to be rebounding. The Gaza warfare and the Crimson Sea disaster might batter income prospects from this business. In keeping with S&P International Scores, Egypt’s tourism revenues are set to expertise a 10-30 p.c fall from final yr, which might price the nation 4-11 p.c of its overseas trade reserves and shrink GDP.
“The battle’s proximity to the Sinai peninsula has led to a pointy decline in tourism, which introduced in…$13.63bn in income in the course of the 2022-23 fiscal yr,” Amr Salah Mohamed, an adjunct lecturer at George Mason College, advised Al Jazeera.
“Though the total extent of the harm to Egyptian tourism from the continuing battle is tough to quantify up to now, early indications, similar to a 25 p.c drop in early November bookings, recommend a considerable downturn that’s prone to proceed if the battle persists,” he added.
Drop in Suez Canal income
Since November, Egypt has been grappling with the financial impression of Houthi missile and drone assaults towards Israel-linked industrial vessels within the Crimson Sea, which has been the Houthis’ response to Israel’s warfare on Gaza.
A consequence of those strikes alongside the shortest commerce route linking Asia to Europe by means of the Suez Canal has been many transport corporations rerouting their vessels across the Cape of Good Hope.
Within the 2022-23 fiscal yr, the Suez Canal introduced in $9.4bn of income for Egypt. Within the first 11 days of this yr, income from the Suez Canal plummeted by 40 p.c in contrast with the identical interval within the earlier yr.
That harm has solely elevated since then. Egyptian authorities mentioned income in January from the Suez Canal had fallen 50 p.c for the reason that begin of the yr, in contrast with the identical interval in 2023.
Fuel sector issues
Since October 7, Egypt’s gasoline financial system has additionally suffered tremendously. Two days after the Hamas-led incursion into southern Israel, the Israeli defence institution ordered the momentary halting of extractions from the Tamar gasoline subject, situated 25km (15 miles) from Israel’s southern coastal metropolis of Ashdod.
Egypt is residence to the Jap Mediterranean’s solely two gasoline liquefaction facilities. Israel exports its gasoline – together with from Tamar – to Egypt, the place it’s became LNG and exported to different markets, particularly, Europe.
Due to the warfare, Egypt’s re-exports of gasoline fell by greater than 50 p.c within the fourth quarter of 2023 in contrast with that very same interval in 2022. This dynamic has highlighted Egypt’s financial dependence on Israel, which constitutes an enormous vulnerability for Cairo at a time when rigidity is excessive within the area as a result of Gaza warfare.
Potential inflow of refugees
The destiny of the 1.4 million Palestinians taking shelter in Rafah can also be a supply of unease in Egypt.
The federal government of President Abdel Fattah el-Sisi desires to stop the inflow of displaced Palestinians into the Sinai peninsula to flee Israel’s destruction throughout Gaza. There are already 9 million refugees in Egypt, and Cairo has made clear it is not going to assist any transfer that would quantity to the everlasting displacement of Palestinians from Gaza, which many consultants worry is Israel’s sport plan.
Safety issues over the presence of Palestinian fighters in Sinai, and the consequences of their deliberate assaults towards Israel on relations between Cairo and Tel Aviv, are an element for Egypt. Financial challenges additionally assist clarify why Egypt views any forcible expulsion of Palestinians from Gaza into the Sinai as crossing a crimson line. Since Sudan’s battle erupted 10 months in the past, 450,000 Sudanese refugees have crossed Egypt’s southern border, which has already strained Egypt’s troubled financial system.
Towards this backdrop, Egypt has begun constructing a wall two miles west of the Egypt-Gaza border, doubtlessly to forestall such a situation. “There are these of us who worry that Israelis will destroy the prevailing Egyptian border fence in order that they’ll push Gazans into Sinai,” mentioned Patrick Theros, the previous US ambassador to Qatar, in an interview with Al Jazeera.
“Egypt is constructing a second border wall flippantly inside Egyptian territory to function a deterrent to the Israelis. Given Netanyahu’s determined want to remain in energy and keep away from going to jail, the deterrent might not work,” he mentioned, referring to Israeli Prime Minister Benjamin Netanyahu, whose recognition is at a report low domestically. Many analysts have argued that he wants the warfare to proceed to keep away from being faraway from workplace. Netanyahu faces corruption circumstances.
“Washington’s irrational refusal to cease him might encourage Netanyahu to increase the preventing into Sinai, even when it ends the peace treaty with Egypt,” Theros mentioned.
Managing expectations for financial reforms
Final month, US Treasury Secretary Janet Yellen met with the Egyptian Finance Minister Mohamed Maait in Washington to pledge US assist for the Egyptian financial system and reforms.
On the similar time, there have been discussions about augmenting Egypt’s $3bn mortgage with the Worldwide Financial Fund (IMF) to assist it deal with the warfare in Gaza and the Crimson Sea safety disaster. The principle components of the financial reform bundle embody the Egyptian authorities selling stakes in dozens of state-owned enterprises, subsidy reductions, shifting in direction of a versatile trade fee, and making the army’s function within the nationwide financial system extra clear.
But, analysts warning, the warfare in Gaza and the Crimson Sea safety disaster coming within the aftermath of the geopolitical shocks attributable to Russia’s invasion of Ukraine two years in the past will most likely make Egyptian officers extra reluctant to implement some financial reforms.
In an interview with Al Jazeera, Ryan Bohl, a Center East and North African analyst on the threat intelligence firm RANE, mentioned the IMF would have to be thoughtful of the a number of pressures dealing with Egyptian policymakers when making calls for of them.