The Dollar Declines… Against the Pound

It seems that the Egyptian economy has begun its journey out of what was described as the “bottleneck” into which it was pushed in 2022/2023, a period that witnessed a slowdown in GDP growth, rising inflation rates, and the return of the black market for foreign currency trading — all signs of economic stagnation or slowdown accompanied by rising prices of goods and services, driven by external pressures and domestic imbalances that required correction.

So, can we now be “optimistic” after noticing the depreciation of the US dollar against the Egyptian pound, reaching an average of around 49.5 pounds per dollar?

This coincided with an increase in GDP growth rates, now around 4%, and expected to rise to above 4.6% next year.

Fueling this optimism are rising revenues from tourism, noticeable improvements in income from the Suez Canal, and—most importantly—a major rebound in remittances from Egyptians abroad, following a sharp decline in previous years.

But is this “optimism” truly based on objective grounds and official figures, or is it merely hopeful anticipation backed by the prayers of sincere Egyptians?

We must first recall that Egypt endured tough economic conditions in recent years: starting with the negative repercussions of the COVID-19 pandemic, followed by the Russia-Ukraine war, and later the renewed Israeli aggression against the Palestinian people from October 7, 2023, until today — with no genuine hope in sight for an end to the war.

Those conditions led to slower economic growth, consecutive increases in public debt (especially foreign debt), a severe inflation wave, and a steep drop in Egypt’s foreign currency reserves — particularly the US dollar, the primary currency for financing imports and servicing debts.

Then, with God’s will and Egypt’s dedicated efforts, the economy managed to regain some breath, reactivate movement, and begin a safe path back toward pre-crisis stability.

The recovery efforts began with Egypt seeking a new reform program agreement with the IMF worth $12 billion in funding over four years.

At the same time, the government succeeded in signing a massive investment deal with the UAE to develop land in Ras El-Hikma worth billions of dollars, alongside other European and Gulf investments. These injected new vitality into Egypt’s economy and helped the Central Bank initiate a new monetary policy targeting inflation reduction and the elimination of the dollar black market.

The first steps came on March 7, 2024, with the liberalization of the foreign exchange market according to supply-and-demand mechanisms. Interest rates on bank deposits were raised to 28%, while international support exceeding $50 billion in aid and foreign investment was secured.

Meanwhile, the government launched new fiscal and social policies to contain inflation and manage the budget deficit: reducing subsidies (especially on petroleum products), cutting expenditures, prioritizing essential spending, pushing forward privatization, and encouraging private-sector investments.

All these policies combined helped stabilize the exchange rate, with a gradual decline reaching 49.5 pounds per dollar on average, while interest rates fell to 25% and inflation dropped to around 15% in June. In addition, foreign reserves rose to about $49 billion, enough to cover six months of imports (traditionally only three months).

So far, macroeconomic indicators are improving — giving us reason to be optimistic. The economic “blood flow” has returned to the veins. But what about the near future?

First, it must be stressed that increasing foreign currency inflows remains the optimal solution for improving domestic conditions. These inflows stem from five known sources, highly sensitive to external global conditions as well as the seriousness and speed of reforms at home.

1. Remittances from Egyptians abroad are the highest source, recently exceeding $33 billion — up 70% from the previous year (23 billion in 2022, 25 billion in late 2023, and steadily rising back toward pre-crisis norms).

This rebound is largely due to higher Egyptian bank interest rates and the elimination of the black market.

2. Exports form the second source. However, Egypt faces a chronic trade deficit. At the end of last year, the trade balance hit about $108 billion, with imports at 72 billion and exports at only 32.5 billion, leaving a deficit of 39.5 billion.

Encouragingly, in April the monthly trade deficit declined to $3.42 billion (down from 3.78 billion the previous month) thanks to a 19% rise in exports (to 4.10 billion) and a 4.5% drop in imports (to 7.23 billion).

The government aims to gradually reduce this deficit, targeting exports worth $100 billion over the next five years.

3. Tourism revenues represent the third foreign currency stream. With Egypt’s diverse tourism offerings, the country aims to host 30 million tourists annually by 2030.

Tourism revenues reached $14 billion last year, up from 11 billion the year before. Over 9 million tourists visited Egypt in the first half of this year (a 22% increase YoY). Revenues are expected to reach $16 billion by year-end, supported by 5,000 newly built hotel rooms and another 18,000 under construction.

4. Foreign direct investment (FDI) is the fourth source. FDI peaked at $46 billion in FY 2023/2024 (up from just 10 billion the year before).

The UAE accounted for 70% (mainly the Ras El-Hikma project), followed by the US (5.5%), the UK (5.2%), and Italy (4.7%). Investments were directed into construction (64%), services (16%), manufacturing (8%), and oil (8%).

However, FDI has since dropped to about $10 billion this year, though it is expected to rebound gradually to $16.5 billion by 2027.

5. Suez Canal revenues form the fifth source. The Canal generated more than $10.5 billion up to June 2023, but revenues dropped 61% last year to only $4 billion, due to Houthi disruptions in the Red Sea.

To counter this, the Canal Authority expanded services, storage facilities, and maritime industries, while the Suez Canal Economic Zone attracted $8.3 billion in foreign investments across 272 projects.

Additionally, there are temporary sources such as foreign aid, US assistance (which has significantly shrunk), and loans from the World Bank and IMF tied to reform programs.