Egypt’s Tourism, Suez Canal Revenues Could Shrink By $13.7 Bln

Revenues from Egypt’s tourism sector and Suez Canal in the current FY2023/2024, which ends on 30 June, and the upcoming FY2024/2025 could shrink by up to $13.7 billion the United Nations Development Program (UNDP) said in a new study.

The study envisions three scenarios for the Gaza war, a low-intensity scenario where Egypt would lose $3.7 billion, a medium-intensity scenario where Egypt would lose $9.9 billion, and a high-intensity scenario where Egypt would lose $13.7 billion.

The two sectors together account for around 20 percent of the Egypt’s foreign currency receipts.

Before the outbreak of the Gaza war, tourism contributed 8.3 percent (EGP 612.6 billion) of GDP, up from 3.8 percent in 2020 during the COVID-19 pandemic.

The council also estimates that travel and tourism activities generated 2.37 million jobs in 2022 (8.5 percent of total direct and indirect employment).

Canal revenues jumped to $8.8 billion in FY202220/23, up from $7 billion the fiscal year before, while tax and dividend revenues from the Canal are expected to represent eight percent of total revenues for the current FY2023/2024, according to the Central Bank of Egypt (CBE).

As a result of the Gaza war, the Suez Canal Authority announced that the Canal’s revenues declined by 46 percent (Y-o-Y) in January 2024.

Economic cost of Gaza war to Egypt’s economy Titled “Potential Socioeconomic Impacts of the Gaza War in Egypt:

A Rapid Assessment,”, the study expects the total economic cost of the war to Egypt’s economy during FY2023/2024 and FY2024/2025 to hit $5.6 billion under the low-intensity scenario, $14.6 billion under the medium-intensity scenario, and $19.8 billion under the high-intensity scenario.

These costs correspond to a loss of 1.6 percent of the annual average baseline GDP under the low-intensity scenario, 3.9 percent under the medium-intensity scenario, and 5.2 percent under the high-intensity scenario,” According to the study’s estimations.

Egypt’s GDP to decline It also projected Egypt’s GDP to decline by 1.6 percent in FY2023/2024 under the low-intensity scenario; by 2.6 percent in the FY2023/2024 and 1.3 percent in the FY2024/2025 under the medium-intensity scenario; and by 3 percent in the FY2023/2024 and 2.6 percent in the FY2024/2025 under the high-intensity scenario.

In this respect, the study assumed that this drop could imply a significant increase in the unemployment rate in the country, a decline in household consumption, and an increase in the poverty rate.

Unemployment on the radar Accordingly, the study expected the country’s unemployment rate to rise by 0.5 percent under the low-intensity scenario, 0.9 percent under the medium-intensity scenario, and 1.3 percent under the high-intensity scenario in the F/2023–2024.

Furthermore, households’ real disposable income and consumption are expected to fall by 1.3 percent under the low-intensity scenario, by 2.1 percent under the medium-intensity scenario, and by 2.5 percent under the high-intensity scenario in the FY2023/2024 fiscal year.

Under the medium- and high-intensity scenarios of the Gaza war, the study expects negative impacts on the country’s economy in the upcoming FY2024/2025.

Human development to decline In this regard, the study expects Egypt’s Human Development Index (HDI) to decline from 0.728 in 2022 to 0.726, while in the high intensity scenario, it is expected to decrease to 0.720.

“This would bring human development in Egypt back to the 2021 level in the first two scenarios and to the level observed in 2018 in the third scenario,” the study explains.

Food price spikes ahead Additionally, the study assumes that regional conflicts can lead to spikes in energy and food prices that will intensify the ongoing inflationary pressure in the country and, consequently affects the poor and socioeconomically vulnerable population.

Monetary policy tightening impacts Moreover, the extended period of monetary policy tightening to contain inflation is expected to burden businesses and households over the medium term, leading to reduced consumer spending and economic activity, according to the study.

The study highlighted the recent developments Egypt has witnessed over the past few months; particularly the finance packages have been committed for the country by the international financial institutions (IFIs) that aim to restore the country’s macro-financial stability amid the repercussions of the Israeli war on Gaza.

IFIs’ finance packages to boost country’s economy However, the study expects that the government’s newly signed agreements with the International Monetary Fund (IMF), the Ras El-Hekma development deal with the UAE, and the Egypt-European Union (EU) Strategic Partnership Agreement will have a positive effect on the country’s economy.

“The inflow of foreign currency and capital through these agreements together with the implementation of prudent macroeconomic policies and recovery actions recommended here will likely help the government mitigate the problems and smooth-out the negative impacts of the Gaza war,” the study highlighted.

According to the study, the Gaza war started while the Egyptian was already suffering economic challenges amid a rapid depreciation of the local currency of the pound on the parallel market, record-high inflation rates and mounting debt pressure, in addition to long-standing challenges such as a weak private sector, diminishing international investment, and a labour market characterized by high informality, especially for youth and women, as per the study.

“The Gaza war will likely magnify these adverse conditions and make mitigation policy responses more challenging”, the study assumes.