February 20, 2024

Red Sea Crisis Takes a Toll on Egypt’s Shaky Finances

The effects of the Red Sea crisis are weighing on the national economy of Egypt, which gets a good share of its dollar currency for foreign exchange from the operation of the Suez Canal. Traffic on this strategic – and lucrative – waterway has dropped by half since the beginning of hostilities in the Red Sea, according to the nation’s top leader.

“The Suez Canal, which used to bring Egypt nearly $10 billion per year, [its revenues] have decreased by 40 to 50 percent. And Egypt must continue to pay companies and partners,” Sisi said at an oil conference Tuesday, according to AFP. 

Egypt faces a multitude of economic challenges. Deficit spending has driven its public debts up over the past 20 years, and external debt exceeded the $130 billion mark in 2020. It is import-dependent, especially for food, and a chronic current account deficit has dragged down the value of its currency. Inflation is running in the range of 30 percent, causing a crisis of purchasing power for the population at large. 

The conflict in Gaza has handed Egypt two economic shocks: a drop in tourism revenue from security-conscious visitors, and a drop in Suez Canal traffic from Houthi attacks to the south. The designated terrorist group has targeted vessels with any links to Israel’s allies, even tenuous links, and the risk has driven away most of the well-recognized names in shipping. 

Egypt will likely get an economic aid package from the IMF shortly, and this will help plug the gap from the Suez Canal slowdown. The Egyptian government hasn’t fully kept its past agreements with the IMF, but it will likely get more funding anyway – in part because it has such a key role in regional affairs, according to Ishac Diwan, an economist with the Paris School of Economics.

“It’s a country that’s very important geopolitically. The war in Gaza makes it, again, very important. The war has given new momentum in Western capitals to back the IMF and to vote for that loan at the IMF board. Egypt is just too big to fail right now,” Diwan told NPR.