<h3 dir="ltr">Introduction</h3>
In light of the major changes and volatility currently shaping the international political and economic stage, Egypt has released an economic plan titled "The Most Important Strategic Directions for the Egyptian Economy for the New Presidential Term (2024-2030).&rdquo; The government will work on finding diverse income streams to alleviate the foreign currency crisis, according to the economic plan. Despite the ambitious goals detailed in the document, the current conditions present many obstacles to achieving this plan, especially given the widening gap between the official dollar price and the exchange rate on the black market, as well as the dip in foreign exchange earnings. Furthermore, multiple credit rating agencies have lowered their credit rating score for the Egyptian economy. Taking all these issues into consideration, the following points will be addressed:
<h3 dir="ltr">First: The value of the Egyptian pound and foreign exchange flows in Egypt during the period (2021-2024):</h3>
The weighted average exchange rate of the dollar reached 30.9 pounds at the end of 2023 and the beginning of 2024, compared to about 15.68 pounds for the fiscal year 2021-2022 (Central Bank, 2022). This means that the price of the dollar against the Egyptian pound increased by about 96% during that period (Khaled, 2023). The exchange rate plays an important role and directly affects many macroeconomic variables, including inflation rates, foreign exchange inflows, as well as international trade at a time when Egypt is facing a high import bill and weak elasticity of demand for exports (Morsie, 2021).
Foreign exchange flows to Egypt totaled $99 billion in 2022-2023. Exports were the highest contributor to the Egyptian economy, with $39.6 billion for the fiscal year 2022-2023. However, these earnings marked a decline from the $43.9 billion seen in the fiscal year 2021-2022. Remittances from Egyptians working abroad came in second place, but they dipped to $22.1 billion during 2022-2023 from $31.9 billion a year prior. Tourism revenues ranked third, followed by foreign direct investment. Finally, the Suez Canal ranked last on the list (IDSC, 2023).
Figure 1: Changes in Egypt&rsquo;s foreign exchange revenues for the fiscal years (2021-2022) and (2022-2023)
<img src="https://lh7-us.googleusercontent.com/fCNUhddYIuxBWBbiaMqDQ69DgQ4ebVhazQHiU3lmgdhPXL8-Grc6VSlmJkMBeEXzR5ILkEg75OEeE_e7fXXuaCipH9B14Wk9TUgcVaxB9tFj6NSu4Dzlgm1nAty8V5SBQ8qTaSDG97wB" width="576" height="487">
&nbsp;
Source: Prepared by the researcher based on data from the Central Bank of Egypt, and the Information and Decision Support Center (IDSC), Council of Ministers.
<h3 dir="ltr">Second: The state&rsquo;s strategy to increase foreign exchange resources</h3>
The government aims to raise foreign exchange earnings to boost the resilience of the Egyptian economy in the face of the crises through the strategic economic plan, which sets a target of $300 billion in revenues by 2030. The document includes the steps the government will implement, the most important of which is supporting the export of goods and technology services. Egypt aims to boost growth within these segments to 20% over 6 years, compared to an average of roughly 16% between 2017 and 2022. The government is also supporting tourism in hopes of unlocking $45 billion in revenues from the sector. In addition, Egypt is working to boost the Suez Canal&rsquo;s revenues and growth rate[JS1]. This includes the revitalization of the maritime services sector, to unlock $4 billion in projected revenues, translating to a roughly 10% annual growth rate. Furthermore, Egypt&rsquo;s government aims to increase remittances from Egyptians abroad and will establish a company to invest their savings (IDSC, 2024).
<h3 dir="ltr">Third: Factors hindering the achievement of the document&rsquo;s objectives to increase foreign currency resources:</h3>
<ul>
<li dir="ltr">High import bill: Egypt&rsquo;s trade balance deficit reached $39.6 billion in 2023, compared to $45.06 billion in 2022 (CAPMAS, 2024).</li>
<li dir="ltr">Increased external debts and high interest: Egypt&rsquo;s external debt reached $165.7 billion, and the interest on this debt is $42.3 billion, which represents a major leakage of foreign exchange revenues (Central Bank, 2023).</li>
<li dir="ltr">Decline in Suez Canal revenues: With multiple Houthi attacks in the Red Sea, the Suez Canal&rsquo;s revenues declined in January 2024 by 46% compared to the same period last year.</li>
<li dir="ltr">Decline in remittances from Egyptians abroad: remittances dropped 30% from $32 billion in 2022 to about $22 billion in 2023.</li>
</ul>
<h3 dir="ltr">Fourth: Proposed alternative policies to establish foreign currency income streams:</h3>
The alternative policies can be divided in terms of the timespan needed to achieve them as follows:
Short-term policies:
- Measures taken by the Central Bank:
<ul>
<li dir="ltr">Launching an Egyptian Pound Index, which includes a basket of international currencies and gold, which will help determine the value of the Egyptian pound against each currency according to supply and demand. This will contribute to the stability of the exchange rate as the Egyptian pound&rsquo;s value will not solely be linked to the dollar.&nbsp;</li>
<li dir="ltr">Using futures contracts to provide an integrated financial service that allows bank customers to hedge against the risks of exchange rate fluctuations. Import futures contracts will also create a promising market in the future and relieve pressure on the currency.</li>
<li dir="ltr">Developing monetary policies that aim to create new tools that incentivize local depositors to save in foreign currency within local banks. Also, boosting remittances through the establishment of a dollar investment pool that grants Egyptians abroad high interest while ensuring their freedom to transfer those funds.</li>
<li dir="ltr">Establishing a national electronic platform to exchange currencies for tourists under the direction of the Central Bank. This can include putting ATMs in hotels to help tourists exchange their currencies through official channels.</li>
</ul>
- Utilizing fiscal policy tools: It is of the utmost importance to reduce external debt to ease the burden placed on the public budget through a comprehensive approach that allows the state to set priorities, utilize debt swap initiatives, and issue sovereign bonds as an innovative tool that provides the required financing. These efforts would work in tandem with tax and administrative reforms.
- Tightening security measures: to curb the black market, one of the key drivers of exchange rate volatility. Central Bank Law No. 194 of 2020 regulates the possession of foreign currency in Article 212, and those accused of trading in foreign currency stand to face several penalties if implemented (Hassan, 2023), which is what the Egyptian government has done since the start of February 2024.
- Continuing the privatization program In February 2023, the Council of Ministers announced the government&rsquo;s initial public offering program that will allow the privatization of state-owned companies and serve as an income stream for foreign currency. This is detailed within the framework of the &ldquo;State Ownership Policy.&rdquo; Furthermore, the central unit within the Council of Ministers must commence its duty and speed up the public offering (IDSC, 2024).
Long-term policies:
<ul>
<li dir="ltr">Supporting the export industry by transforming Egypt&rsquo;s economy into an industrial economy focused on the production and export of goods, thereby minimizing external shocks. However, to achieve this, the state must appoint an administration to oversee the private sector companies operating in the industrial zones and urge them to formulate new methods for providing services, and continuing the initiative to reduce export burdens (Fintech Gate, 2023). It is worth noting the importance of strengthening the plan to increase exports, in which Egypt has a competitive advantage, especially in the agricultural sector and the renewable energy sector, as well as digital exports and outsourcing services, which the state aims to cultivate to reach a 10-12% annual growth rate. The state also plans to promote and export real estate in Egypt to those living abroad through an initiative, which can have an actual impact on the Egyptian real estate stock exchange. Besides boosting exports to the markets within the COMESA and BRICS blocs, which Egypt is a member of.</li>
<li dir="ltr">Supporting the tourism sector by implementing the state&rsquo;s plan to increase the number of tourists to 30 million visitors over the next 3 years, which requires the facilitation of funds and investments for hotels and solving the problems facing the existing establishments. Moreover, the country looks to attract foreign investments into Egypt&rsquo;s tourism sector. In addition, the possibility of granting hospitality and tourism companies financing in foreign currencies on the condition that they deposit their revenues in foreign currencies as well.</li>
<li dir="ltr">Attracting new investors by continuing to implement the golden license system, and focusing on attracting companies that want to escape Europe&rsquo;s energy and inflation crisis. Also, increasing the number of free zones, and enhancing the overall performance of investment zones in cooperation with industrial developers.</li>
<li dir="ltr">Driving remittances from workers abroad by replicating successful models from nations that receive high remittance flows, like India and Mexico. Also, looking into reducing bank transfer fees, as well as issuing dollar bonds similar to what India and Nigeria did (Elgibaly, 2023). Encouraging local banks to establish branches abroad, especially in the nations from which the remittances are being transferred. Finally, expanding financial inclusion, especially in villages, with a focus on providing digital financial services (IDSC, 2023).</li>
</ul>
<h3>Conclusion</h3>
The government&rsquo;s plan for the coming years boasts many positive indicators, and if it succeeds in implementing it, the Egyptian economy will become much stronger, and more resilient in the face of international shocks. But what is perhaps more than developing a strategy is finding ways to implement it effectively and working quickly to create foreign currency income streams. It is also vital to develop sustainable inflows of foreign currency through an industrious economy, rather than relying on emergency sources such as the upcoming International Monetary Fund loan.
<hr>
References
<ul>
<li dir="ltr" role="presentation">&nbsp;Al-Jabali, Abdel Fattah. (2023). Ways to attract remittances from Egyptians working abroad, Egyptian Center for Thought and Strategic Studies. Available at the following link: <a href="https://2u.pw/9YEyNr6">https://2u.pw/9YEyNr6</a></li>
<li dir="ltr" role="presentation">Central Agency for Public Mobilization and Statistics, Trade Balance of the Arab Republic of Egypt in million dollars, available at the following link:&nbsp;<a href="https://2u.pw/SaG8B3B">https://2u.pw/SaG8B3B</a></li>
<li dir="ltr" role="presentation">Central Bank of Egypt, Annual Report 2020-2021. (Cairo: Central Bank of Egypt, 2022), p. 35.</li>
<li dir="ltr" role="presentation">Central Bank of Egypt, Economic Journal 2022-2023. (Cairo: Central Bank of Egypt, 2022), p. 43.</li>
<li dir="ltr" role="presentation">Central Bank of Egypt, External Debt, available at the following link: https://2u.pw/5Q5srq7</li>
<li dir="ltr" role="presentation">Center for Information and Decision Support. (2023). International Practices for Promoting Remittances for Workers Abroad, Weekly Issue No. 127. Available at the following link: https://2u.pw/rev8A7i</li>
<li dir="ltr" role="presentation">Fintech Gate, &ldquo;The government is preparing to launch the first initiative of its kind to export Egyptian real estate abroad,&rdquo; September 18, 2023, available at the following link: https://2u.pw/U5jX52n</li>
<li dir="ltr" role="presentation">Hassan, Atef. The reciprocal relationship between achieving financial inclusion rates and sustainability in financial institutions, Egyptian Banking Institute, available at the following link: https://2u.pw/5nwMsj7</li>
<li dir="ltr" role="presentation">Information and Decision Support Center, Main Sources of Foreign Cash Flows in Egypt 2022/2023, available at the following link:&nbsp;<a href="https://2u.pw/D7FTksp">https://2u.pw/D7FTksp</a></li>
<li dir="ltr" role="presentation">Khaled, Muhammad. (2023). How to make Egyptian bonds more desirable?", Ahram Online. Retrieved from:&nbsp;<a href="https://2u.pw/D2UetbT">https://2u.pw/D2UetbT</a></li>
<li dir="ltr" role="presentation">Morsi, Hind. Exchange rate liberalization policies and their impact on poverty and income distribution in Egypt. Journal of the College of Politics and Economics. (Beni Suef: Beni Suef University, Volume 10, Issue 9, January 2021), p. 4-15.</li>
<li dir="ltr" role="presentation">Presidency of the Council of Ministers, the most prominent strategic directions of the Egyptian economy (2024-2030), (Cairo: Council of Ministers, January 2024), p. 29-43.</li>
<li dir="ltr" role="presentation">Zaki, Nabil. (2024). Has the approach of controlling and subjugating markets succeeded in the Egyptian economy?, Asharq Al-Awsat newspaper. Available at the following link: <a href="https://2u.pw/OaockSC">https://2u.pw/OaockSC</a></li>
</ul>
<hr>
Additional references
<ul>
<li dir="ltr" aria-level="1">
Abdullah, Faraj. Monetary policies are an introduction to enhancing Egyptian exports, Information and Decision Support Center, available at the following link: <a href="https://2u.pw/NPqJA82">https://2u.pw/NPqJA82</a>
</li>
<li dir="ltr" style="font-size: 10pt;" aria-level="1">
Ibrahim Ahmed. (2023). The effects of raising the interest rate and liberalizing the Egyptian pound on the Egyptian economy in light of contemporary challenges, Scientific Journal of Financial and Commercial Studies and Research, Faculty of Commerce, Damietta University, Volume Four, Issue One, p. 216-246.
</li>
<li dir="ltr" style="font-size: 10pt;" aria-level="1">
Ismail, Musad. (2022). Optimal exchange rate limits to attract foreign direct investment, Journal of the Faculty of Politics and Economics, Beni Suef University, Issue Fourteen 2022, pp. 237-265.
</li>
<li dir="ltr" style="font-size: 10pt;" aria-level="1">
Shan, Lee. (2023). Egypt&rsquo;s pound is among the worst performing currencies in 2023. And it&rsquo;s expected to plummet further. CNBC. Retrieved from: https://2u.pw/aX6Pypv
</li>
<li dir="ltr" style="font-size: 10pt;" aria-level="1">
The American University in Cairo. (2023). Examining the Egyptian Economy. Retrieved from: https://2u.pw/887Ubi4
</li>
</ul>
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