In this interview, Timothy E. Kaldas, the Deputy Director at the Tahrir Institute for Middle East Policy, talks about the effects of the current war in Gaza on Egypt’s economy. The Suez Canal has experienced significant disruptions, particularly due to Houthi assaults on maritime vessels, leading to decreased shipping activities. Furthermore, the tourism sector has seen a downturn, affecting revenue and employment opportunities. Nonetheless, Kaldas points out that Egypt’s economic concerns extend far beyond these issues.
Today I speak with Timothy kdas who’s the deputy director of the T Institute for Middle East policy and professor of international relations at the University of Barcelona to zoom into and better understand the impact of the war in Gaza on Egypt Timothy thank you thank you so much for joining us today so
Egypt has had thank you Egypt has had its fair share of economic challenges uh before October 7th so before we get into how the war is also impacting Egypt’s economy can you give us a quick overview of where was Egypt’s economy before October 7th sure um I mean unfortunately
Egypt’s economy was an extreme in an extremely uh dire State uh before we got to October 7th um and this was the accumulation of a decade of uh of poor uh management of the economy and the regime in Egypt kind of leveraging the state to finance uh their businesses and
Uh and consolidation of power in a way that was was not responsible uh so the results was that Egypt uh accumulated uh an enormous amount of debt both domestic and external uh that became basically unsustainable I mean uh at the end of last year egyp was spending something on
The order of 12.2% of GDP just on interest payments on its debt uh and for perspective on how substantial that is uh Egypt’s uh tax to GDP ratio is only around 13 and a half percent so we’re talking about somewhere in the order of 90% of Revenue going to uh interest
Payments so this was an extremely untenable position for Egypt to be in uh they had signed an IMF deal in the at the end of 2022 That was supposed to involve some pretty substantial structural reforms uh meant to rein in the excesses that we had seen in the past they’re supposed to
Halt on new projects they were supposed to reign in uh the public sector and and they made a point of of naming the military uh businesses in the in the deal for the first time because that’s really where the at the at the core of the problem uh is is the businesses
Owned by the milit Aran general intelligence Services um and yet and despite that after the deal was signed Egypt continued to launch new projects announced new projects the military continued to expand its business Empire and the IMF refused to disperse the Tres of the loan so we were seeing basically
Uh the leadership digging in and refusing to reform uh and in the midst of this the the parallel market for hard currency in Egypt uh uh ran Wild M um and uh and so there was a growing gap between the official exchange rate and The Unofficial exchange rate as people desperately were
Trying to get their hands on dollars and the government was uh was restricting access because they needed to to hold on to as many as possible to cover the cost of their debt as well as essential Imports we saw shortages of medicine uh and other products in Egypt restrictions
On Imports in general so the the economy was in in quite poor shape before we got to October 7th and there wasn’t really a clear indication from the leadership that they were prepared to make the changes necessary to get out of this problem and so then um the Hamas attacks
On Israel take place on October 7th and of course um Egypt shares a border with Israel and and the Palestinian territories particularly Gaza so this is not just a conflict that is happening you know in the um in the neighborhood this is right on the border and there
Are are so many considerations um ra is the main entry point for humanitarian Aid and um most of the internally displaced in Gaza are also right at the border so what is the impact currently uh that you have seen so far in the last few months um of the war on Egypt’s
Economy so the the main two areas that have been harmed from uh uh in Egypt’s economy from the uh from the ongoing conflict uh would be tourism uh and uh revenue from the Suez Canal and the latter being perhaps more substantial at this time um
So about a month ago or a month and a half ago the houthi started uh launching attacks on ships passing through ban Menda which is a a vital pathway in order to be able to reach the Su Canal or exit afterwards um and this has substantially reduced the flow of
Shipping that goes to to the sus Canal something on the order I think of a 55% decrease in in revenue for Egypt the Su Canal which is one and and the revenue from the Z Canal is one of the most important sources of dollars for the
Egyptian government so this is this is a very important issue especially at a time where Egypt already had a severe hard currency shortage um so that that’s been a major blow that’s uh made an impact over the last month and a half or so um and the country is losing hundreds
Of millions of dollars a month uh in in in potential revenue from the canal as a result of of this situation um with respect to tourism I think it’s it’s more people considering visiting or re are reconsidering where they want to go um hearing that Egypt’s on the border
Of this conflict uh and that Sinai is in the news and not in a not in a way that would make you want to vacation there uh is is causing people to to not book to visit Egypt or cancel booking um and I haven’t seen a ton of hard data from the
Government on the on the on the full impact but it’s also it’s only been a few months so uh but but anecdotally we’re hearing that it has been impacting hotels and they have been seeing a decline in bookings and uh and this is just as Egypt was kind of uh expecting
Um kind of a historic year in terms of Tourism Revenue so and things have been going on the up for for for a couple of years now uh after the p mic uh so this is this is a blow to another really important industry for Egypt’s hard currency uh Revenue what is the
Percentage of Tourism um in like percentage of the GDP around it’s not a well it depends on how you calculate it I mean it’s not a huge percentage of GDP the last time I looked it was somewhere on the order of 5% it’s which is significant um I think but the thing
About tourism is it’s also a source of good jobs there are a lot of people working in the industry uh uh in a whole variety of ways people working in the food industry people working in the hospitality industry the people supporting the bedding the construction there’s so many there’s so many like uh
Uh parallel industries that are related to tourism so that’s part of the reason why it’s not it’s not so easy to calculate the full value of it um but but it is significant and that said Egypt’s hard currency problems that predate October 7th uh due to the restrictions on hard currency and the
And the current crisis uh made a huge impact on remittances which were actually in 2021 worth more than suas Canal Revenue tourism and foreign direct investment combined uh so that’s a that’s an even more uh worrying situation that really has nothing to do with the current War um so yeah Egypt’s
Egypt’s got a lot of different reasons to be worried about its access to hard currency at this time which is making its its pre-existing uh challenges all the more acute so um what can the United States and other um actors in The International Community do to help support Egypt uh I
Mean the IMF is already doing what it does uh but how can particularly the Us and other Western allies help support Egypt um as as you said as all of these um existing already existing uh challenges become more and more acute as the war prolongs sure well I mean the the the
Way to at least reduce the the new pressures on Egypt’s economy the fastest way to do that would be to really forcefully press for a ceasefire and bring an end to hostilities um I mean the disruption to the to to the Suz Canal uh the disruption tourism uh the
And the preparation and the humanitarian crisis on the border are all going to persist in worson uh as long as this conflict continues and additionally further spillover is is very possible as this as this continues uh and the Israelis look to expand their operations in Raa uh I
Mean and and so the crisis will even worsen so this a ceasefire is really the first and most important thing that the United States can do uh on the financial side uh the the IMF is currently negotiating with the Egyptians to to expand the size of their loan from three
Billion to uh rumors indicate somewhere as much as10 billion um and it’s it’s Egypt needs additional financing that’s not in dispute but it is vitally important that that financing come with uh strict adherence to the conditions already agreed to in 2022 in addition to a much
More serious investment in um in the tax authorities and the capacity of the state to collect tax tax revenue progressively because part of Egypt’s problem is that the revenue is just way too low and there’s no way to make that debt sustainable without more Revenue
You there’s not much left to cut I mean already the government is spending too little to the point where even the IMF is worried about how poor social protection spending is and cash assistance is one of the conditions in the 2022 loan was actually to expand the coverage of cash assistance because of
How uh inadequate it was um that needs to continue because poverty is only Rising the financial pressures on the on the general population are enormous and this isn’t just a an economic just justice issue which is of course very important but additionally when you have a population that is so cash trapped and
And uh and without any sort of uh purchasing power you also have a market environment that deters investment what is the point of for a business to invest in expanding if they have no customer base uh and so getting making sure that there’s cash in the hands of consumers
Making sure that expansion of Revenue sources for the government don’t come at the expense of those unable to pay but actually come from those who are able to who frankly have not been paying their share um in perpetuity really in the case of Egypt’s history uh and so
Addressing these issues and bringing in sufficient revenue is important but also making sure that the spending by the state on Mega projects uh is brought under control uh that the direct Contracting of companies owned by the military and intelligence services and and that there’s actually competitive bids for important projects not not
Vanity projects because the the waste and the accumulation of debt has had a hugely damaging impact on Egypt’s economic health if you get if you give the money without these reforms you’re actually going to be financing a deepening of the crisis because they’ll be accumulating more debt without the capacity to repay
It yeah yeah absolutely uh Timothy kelas thank you again for your Insight and for sharing your expertise on um the the economic situation in Egypt um and the impact of the Gaza War um on the economy thank you my pleasure thanks for having me