Egypt faces dollar crunch as debt explodes

CAIRO

Egypt's economic crisis is squeezing high-street brands such as Starbucks and The Body Shop as experts ask how the Arab world's most populous nation will repay its soaring debt.

Amid a severe foreign currency crunch, the U.S. dollar has become hard to come by as the Egyptian pound is plunging and inflation is surging at 35 percent.

Egypt's highly import-reliant economy, dominated by military-linked enterprises and with a fondness for infrastructure mega-projects, has been hit hard by a series of recent shocks.

The pandemic impacted its key tourism sector. The Ukraine war raised the cost of wheat and other imports. And recent attacks by Yemen's Huthi rebels on Red Sea shipping have slashed vital Suez Canal fees.

Remittances from overseas Egyptian workers - the main source of foreign currency - slumped by as much as 30 percent in July-September 2023 alone, according to Central Bank of Egypt data.

The Egyptian state, highly indebted after years of heavy borrowing, has struggled to service its ballooning debt.

The International Monetary Fund has stepped in with a $3 billion loan facility but demanded painful austerity measures in the country of 106 million people, two-thirds of whom live on or below the poverty line.

Amid the crisis, everybody wants greenbacks, and no one wants to give them away.

On the black market, the dollar is trading at 70 Egyptian pounds, more than double the official exchange rate of 31.

Most of the time, banks simply refuse to give dollars to their customers.

Bank clients travelling abroad are only allowed to withdraw or transfer a maximum of $100 from their Egyptian accounts.

People with only a debit card, rather than a credit card, cannot pay online at all to an overseas account.

This applies even to a Netflix subscription, currently offered at a discount of three dollars per month in Egypt.

Imported big-ticket purchases, such as a new car, are simply beyond the means of most middle-class families.

Investors "who depend on dollars, as well as imported goods, will not be able to continue," said economist Mohammed Fouad.

Egypt's external debt has exploded to $164.7 billion. The cost of servicing that debt this year will be $42 billion.

JP Morgan recently announced that, from January 31, it will exclude Egypt from its index of government bonds of emerging economies "due to issues related to reported difficulties in essential foreign currency convertibility by concerned investors".

Ratings agency Moody's this month lowered the outlook on Egyptian government bonds to "negative" from "stable" in the face of foreign currency shortages, weak consumer confidence and borrowers increasingly unable to repay their loans.