Amid a grinding currency crunch, the Egyptian government announced a plan to amass $191 billion in annual foreign revenues by 2026, a target that experts believe may be attainable if genuine reforms are achieved.

In a press conference last week, Egypt’s Prime Minister Mostafa Madbouly said the plan envisages an annual 10% increase in FDIs, the Suez Canal receipts and remittance of workers abroad, and another 20% increase in tourism and commodity export revenues by 2026. If the targeted figure is attained, it will mark a significant leap from nearly $103 billion that the government secured in the fiscal year fiscal year 2021-2022.

“Most of the numbers are doable but obviously depend on the policies that are adopted to make them happen,” Mohamed Abou Basha, an analyst with EFG Hermes told Zawya. “Restoring a functional forex market and eliminating the informal forex market is key to increased foreign currency flows into the economy. This won’t happen until the market find a clearing rate for the Egyptian Pound.”

The Egyptian pound is widely believed to be overvalued; however, the government has been reluctant to move away from the current rate of $30.8/$. Egypt’s President Abdel Fattah el-Sissi has recently said that another depreciation of the pound would jeopardize national security. In the meantime, the government has turned a blind eye to a parallel black market where the greenback is traded for at least EGP36. 

The prime minister unveiled the plan at a news conference where he also announced state asset sales worth $1.9 billion.

Some of the listed sectors are already showing signs of significant growth. In 2022 H2, the services receipts doubled reaching about $ 10.9 billion compared to $ 5.6 billion during the same period of the previous year, according to the Central Bank of Egypt’s latest report on the external position of the Egyptian economy. This increase was driven by a surge in tourism revenues to $ 7.3 billion from $ 5.8 billion and the spike in transport tariffs and Suez Canal revenues which rose from 3.4 billion in H2 2021 to 4.0 billion in H2 2022.

“When it comes to commodity exports, we are a bit more skeptical about whether the government’s targets will be achievable without any real evidence of advancement in boosting local production as of yet,” Calle Davis, an analyst with Oxford Economics told Zawya.

According to the same Central Bank of Egypt’s report, exports increased by only 3.9 % in the second half of 2022 reaching US$ 21.5 billion. The increase was mainly driven by oil exports which constitute nearly 40% of the country’s exports. As to non-oil exports, they rose by only 1% reaching $12.9 billion.

“We import raw materials for most industries. Given the forex situation, it might be difficult to increase commodity exports by 20%,” Amr El-Alfy, head of research at Prime Holding said.

As to remittances, they also have been following a downward slope since last year, which cast doubt over the government’s ability to reach an annual 10 percent increase. In H2 2022, they dropped by 23% to $ 12.0 billion compared to $ 15.6 billion during the same period the previous year, according to CBE figures.

“If forex markets normalize, I think the country can attract more remittances especially with more people leaving to work abroad and the Gulf economies seeing good level of economic growth,” said Abou Basha.

Unlike remittances, FDIs have recently made new records, reaching $5.7 billion in the first half of 2022-2023 fiscal year compared to $3.3 billion during the same period of previous fiscal year. “There is good appetite to invest in the green economy, including green hydrogen and renewable. That’s in addition to tourism, pharmaceuticals, and manufacturing. The key challenge is providing business friendly environment, availability of foreign currency and reduced role of the state in the economy,” Abou Basha explained.

Since March 2022, the Egyptian pound has lost nearly 50% of its value because of the Russian invasion of Ukraine and the global economic shock that ensued. Last year, the IMF approved a $ 3 assistance program to help Egypt attract more financial support from regional and international partners and to close a financing gap, estimated at $17 billion over the next four years. Adopting a flexible exchange rate and reducing the state’s footprint in the economy were among the IMF deal conditions.

(Writing by Noha El Hennawy; Editing by Seban Scaria seban.scaria@lseg.com)