Money transfers through official channels by Egyptians working abroad plummeted by 23% during the second half of 2022, reaching the lowest level since the 2016 crisis.
Remittances, a key source of hard currency in Egypt, are plummeting as the country faces great economic uncertainty, and Egyptians abroad seek alternative ways to send money home, reported Al Monitor.
During the first half of the 2022/2023 fiscal year, which falls in the second half of 2022, these transfers fell by 23% to $12 billion compared to $15.6 billion a year earlier, according to recent data from the Central Bank of Egypt. It was the lowest level the country had recorded since the first half of fiscal year 2016/2017, when remittances stood at $10 billion, stated Marc Espanol in his report on Al Monitor.
Egypt is the world’s fifth largest recipient of remittances, mainly sent by workers in the Gulf, and in 2021/2022 these inflows hit an all-time high of $31.9 billion, more than revenues from the Suez Canal and tourism combined ($17.7 billion), CBE data shows.
“Egypt has been the largest beneficiary of remittances in the MENA region for several years,” Kevin Graham, editorial manager at research firm Oxford Business Group, told Al-Monitor. “Remittances have been a critical pillar of Egypt’s economy,” he added.
Since most of Egypt’s remittances come from the Gulf, such flows have traditionally been sensitive to changes in global oil prices, which spiked above $100 per barrel following Russia’s invasion of Ukraine but have since fallen from May 2022 peaks. To a lesser extent, remittances have also tended to be sensitive to the health of economic activity in the West.
Despite the slowdown in oil prices and the global economy that followed the outbreak of the Ukraine war, the World Bank still expected remittances in Egypt to pick up due to an “altruistic response” from Egyptian migrants to the hardships at home.
However, soon after Egyptian authorities proceeded in March 2022 with the first major devaluation of the Egyptian pound and a parallel market with a different exchange rate emerged, remittances plummeted. Already in the first quarter of the current fiscal year, running from July to September 2022, inflows fell by 21% to $6.4 billion.
Authorities have since devalued the local currency twice, resulting in a loss of over 50% of its value against the dollar as speculation mounts about a fourth devaluation.
The reasons for the slump in remittances are both internal and external. The main factors are widespread concern about the future of the Egyptian economy as well as the existence of two exchange rates and an acute shortage of dollars.
“We believe the large spread between the official market rate (around 31.0 Egyptian pounds to the dollar) and parallel market rates (close to 40.0 Egyptian pounds to the dollar) have discouraged Egyptian expatriates from remitting money through the official channels,” Ramona Moubarak, head of MENA Country Risk at research firm Fitch Solutions, told Al-Monitor.
However, this does not necessarily mean that this money has stopped flowing into Egypt, as it may be arriving through informal channels, including intermediaries, although the extent of such a shift is unclear. “We believe that expatriates still sent money through other channels, such as physically carrying it when visiting,” Moubarak said.
Graham takes a similar view. “The impact of reduced remittances will not be as significant as it would be if the decline in official numbers also included in the black market.”
Of the $31.9 billion that Egyptians abroad sent home in the 2021/2022 fiscal year, $21.5 billion came from Arab countries, mainly Saudi Arabia ($10.9 billion), Kuwait ($4.5 billion) and the United Arab Emirates ($3.5 billion), according to the state statistics agency.
An Egyptian working in the Gulf who preferred to speak on condition of anonymity told Al-Monitor that the drop in remittances is also the result of the rising cost of living in the Gulf, concerns about the Egyptian economy and the partial success of government efforts to lure money from abroad, such as a scheme to import cars duty free.
“Obviously, the interests of the nation and the country are important. But in the end, everyone thinks of his direct interest,” he said.
Moubarak feels that the official remittance figures “will only increase once the gap between the official and parallel market rates narrows or is fully eliminated.”
“We think this will only happen later in 2023 or in early 2024,” she said.
Graham also said the stability of the Egyptian pound is key to get remittances flowing back into official channels. “Some of the declines in inflows shown by the data are also attributable to Egyptians abroad holding off on making transfers in anticipation of future expected devaluations,” he said.