Egypt’s Economic Woes Deepen Amid Israel-Gaza Conflict and Red Sea Tensions
Already facing a severe economic crisis, Egypt’s financial stability is on the brink due to the escalating Israel-Gaza conflict and mounting tensions in the Red Sea, analysts warn.
Egypt’s Economy on “Life Support”
Egypt’s economic troubles are monumental, with towering public debt exceeding 90% of its gross domestic product (GDP). Additionally, the country is grappling with significant capital flight and a depreciating currency against the US dollar. Now these existing challenges are being amplified by the war inching closer to Egypt’s borders, displacing a large portion of Gaza’s population into Rafah after enduring relentless Israeli attacks for months.
Tourism Industry in Peril
Tourism, a crucial cornerstone of Egypt’s economy, is headed for a significant downturn. Egypt’s rich historical sites and luxurious Red Sea resorts have traditionally drawn millions of visitors, making tourism a major source of national income. In 2022, the tourism sector employed approximately 3 million Egyptians.
Before the outbreak of the Israel-Gaza war, the tourism sector was slowly recovering from the devastating impact of COVID-19. However, the conflict in Gaza and tensions in the Red Sea threaten to derail this recovery. According to S&P Global Ratings, Egypt’s tourism revenues could plummet by 10-30% from last year, potentially draining 4-11% of its foreign exchange reserves and shrinking GDP.
"The conflict’s proximity to the Sinai peninsula has led to a sharp decline in tourism, which brought in $13.63 billion in revenue during the 2022-23 fiscal year," said Amr Salah Mohamed, an adjunct lecturer at George Mason University in an interview with Al Jazeera. Early indicators, such as a 25% drop in bookings for early November, suggest substantial downturns if the conflict persists.
Suez Canal Revenue Plunge
Egypt is also dealing with the economic repercussions of Houthi missile and drone attacks targeting Israel-linked commercial vessels in the Red Sea. These strikes, a response to Israel’s offensive in Gaza, have led many shipping companies to reroute their vessels around the Cape of Good Hope, bypassing the Suez Canal.
The Suez Canal, which generated $9.4 billion in revenue for Egypt during the 2022-23 fiscal year, has seen a significant dip in revenue. In the first 11 days of this year, revenues plummeted by 40% compared to the same period last year, with the situation worsening since then. By January, the canal’s revenue had dropped by 50% since the start of the year.
Gas Sector Challenges
The fallout from the conflict extends to Egypt’s gas economy. Following Hamas-led incursions into southern Israel, the Israeli defence establishment temporarily halted extractions from the Tamar gas field. This has severely impinged Egypt’s gas exports, which fell over 50% in the fourth quarter of 2023 compared with the same period in 2022, underscoring Egypt’s significant economic dependence on Israel.
Refugee Crisis Looms
The Egyptian government is also concerned about the potential influx of 1.4 million displaced Palestinians from Gaza seeking shelter in Rafah. Cairo is staunchly opposed to this influx, considering it a potential trigger for both economic and security issues.
Given the already strained national resources, exacerbated by the arrival of 450,000 Sudanese refugees since the outbreak of Sudan’s conflict 10 months ago, Egypt has started constructing a wall two miles west of the Gaza border to preemptively control this situation.
US Support and Economic Reforms
Adding to the financial strain, Egypt’s Finance Minister Mohamed Maait recently met with US Treasury Secretary Janet Yellen to secure Washington’s support. Discussions included the potential augmentation of Egypt’s $3 billion loan from the International Monetary Fund (IMF) to confront the ongoing crises. The proposed economic reforms involve selling stakes in state-owned enterprises, reducing subsidies, adopting a flexible exchange rate, and enhancing transparency in the military’s economic role.
However, analysts caution that the concurrent pressures from the Gaza war and the Red Sea crisis, along with the lingering impacts of Russia’s invasion of Ukraine, might deter Egyptian officials from fully pursuing these economic reforms.
In conclusion, as the conflict in Gaza and Red Sea tensions exacerbate Egypt’s economic woes, policymakers face the herculean task of navigating these multifaceted challenges to safeguard the nation’s financial stability.
