War in Gaza buffets Egypt’s already shaky economy

The war in Gaza threatens to further weaken Egypt’s economy by disrupting crucial sectors such as tourism and natural gas imports, Reuters reports. The Israel-Hamas conflict is the third shock to Egypt’s struggling economy following the COVID-19 pandemic and the Russian invasion of Ukraine. Egypt’s dependence on short term portfolio investment, remittances, and tourism revenues to partially cover a chronic trade deficit, make it vulnerable to external shocks.

Egypt needs $28 billion to debt servicing in 2023. A $3 billion IMF loan programme is off course because of Egypt’s failure to float its currency and execute planned sales of state assets. All three of the major debt rating agencies have further downgraded Egypt’s sovereign rating into junk territory.

Before the war in Gaza, the tourism sector had been expected to grow by 30-40% in 2023, said Moataz Sedky of Travco Holidays Egypt, a large hotel and resort management company. According to central bank data, tourism earned Egypt a record $13.63 billion in the financial year to end-June, 2023, up from $10.75 billion a year earlier. Egypt’s tourism minister told Reuters that the impact of the war was limited to under 10% of bookings. However, a senior executive in the tourism industry opined that the outlook is far from healthy, telling Reuters that “reservations are very slow and this is the most worrying.”

Disruptions to natural gas imports from Israel could cause further economic pain because Egypt relies on them for domestic consumption and re-exports in the form of Liquified Natural Gas (LNG). On October 9, Israel suspended production at its Tamar gas field, although small quantities are now flowing. Industry sources gas supplies to gas intensive industries like fertilizers have been reduced.

In 2022, Egypt sent 80 percent of its LNG exports to Europe as the continent diversified away from Russian gas following the invasion of Ukraine. However, as Egypt Today reports, heightened summer domestic demand squeezed LNG exports for 2023.

While Gulf countries have recently lessened their support for Egypt, regional bankers say that sentiment may be changing, according to Reuters. Gulf countries are reportedly discussing a possible financial assistance package including additional cash deposits with Egypt’s central bank.

The IMF could also lend a helping hand to Egypt’s economy, according to comments made by Kristalina Georgieva, the Managing Director of the IMF. Speaking on the sidelines of the Asia Pacific Economic Cooperation Summit in San Francisco, Georgieva told Reuters that that the fund “was seriously considering” augmenting its loan program to Egypt in view of the economic strain caused by the conflict in Gaza.