The Egyptian economy receives positive signs two weeks after its decision to float the pound (Shutterstock)

Egypt, which had been teetering on the brink of its worst currency crisis in decades, has made a surprising turnaround in recent weeks, becoming the hottest emerging market.

Bloomberg said that the announcement of a huge deal to develop the tourism sector worth $35 billion with the United Arab Emirates, which is the largest internal investment in Egypt’s history, seemed like a pivotal shift.

The infusion of capital invested in the deal, mostly in dollars, was a lifeline, enabling Egypt to embark on a series of measures aimed at stabilizing its faltering economy, according to Bloomberg. Measures included a significant increase in interest rates, to an expansion of the scope of the International Monetary Fund loan.

Anatolia Agency points out that one of the most prominent signs of the recovery of the local economy in Egypt was the weakening of the parallel market for the currency, which was a haven for those searching for the dollar away from official channels.

The exchange rate of the dollar in the parallel market reached 70 pounds, compared to 31 pounds in the official market last February, but the currency began a decline towards 55 pounds, with the announcement of the imminent reaching of an agreement with the IMF.

Therefore, financial market analysts in Egypt expect the parallel market to be completely eliminated by the beginning of next month, leaving the official market as the only source for currency trading.

The capital invested in the tourism development deal with the Emirates enabled Egypt to initiate a series of measures aimed at stabilizing its economy (Anatolia)

Investments are flowing

Anatolia Agency reports that recently announced investment flows to Egypt indicate renewed international interest in the Egyptian economy. Countries such as the UAE, Italy and the European Union have pledged investments exceeding $160 billion in the coming years. The Egyptian government responded by revealing development plans for areas such as the coastal “Ras Gamila” region, and starting projects such as “Ras Al-Hikma” in partnership with the Emirates, according to the agency.

Furthermore, Saudi Arabia announced plans to hold high-level financial discussions with Egypt to enhance bilateral cooperation. The Italian company "Danielli" proposed an investment worth $4 billion in an advanced iron and steel complex that aims to create 17,000 job opportunities and facilitate exports to global markets, especially Europe. In addition, plans are underway to establish a green hydrogen production plant, which will attract further investments worth between $2 billion and $3 billion.

Accompanying challenges

However, amid the euphoria surrounding Egypt's new economic vitality, questions remain about the sustainability of this recovery. Bloomberg says that Egypt has a long record of promising reforms that were followed by retreat from them.

The continued decline in the value of the Egyptian pound that began in 2022 exacerbated inflationary pressures in Egypt (Reuters)

Egypt obtains a large portion of its foreign currency reserves from energy exports, tourism revenues, Suez Canal transit fees, and expatriate remittances. However, local industries still suffer from a chronic lack of investment, which is exacerbated by unfair competition from state entities, particularly those linked to the powerful military establishment, the agency noted.

This economic landscape has hampered the diversification of foreign direct investment outside the oil and gas sector, making Egypt highly vulnerable to fluctuations and speculative “hot money” flows from international investors.

The continuing decline in the value of the Egyptian pound, which began in 2022, exacerbated inflationary pressures, in turn exacerbating social and economic pressures on families that depend on state support for basic necessities.

Capital flight, coupled with a scarcity of hard currency, has pushed Egypt to the brink in 2023, with the pound trading at double its official rate on the black market. Furthermore, shipping disruptions in the Red Sea have eroded Suez Canal toll revenues, exacerbating Egypt's economic problems.

Source: Al Jazeera + agencies