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Suez slump compounds Egypt’s foreign currency crisis

A ship in the Gulf of Suez before it enters the Suez Canal. The Canal accounts for a large proportion of Egypt's foreign currency revenue Reuters
A ship in the Gulf of Suez before it enters the Suez Canal. The UAE’s 'very large' FDI contribution significantly bolsters the Egyptian economy’s FX reserves
  • 8% of revenue comes from Suez
  • Houthi militia attack ships
  • Traffic down 42%

Disruptions to shipping in the Suez Canal as a result of the conflict in the Red Sea are exacerbating Egypt’s foreign currency shortages and increasing the need for a new financing package from the International Monetary Fund.

Royalties from traffic through the Suez Canal contribute nearly 8 percent of the Egyptian government’s revenue and generate a substantial share of the country’s foreign currency earnings.

It has been almost two months since Yemeni Houthi militia began sustained attacks on ships passing from the Red Sea through the Bab Al Mandeb Strait and into the Suez Canal.

Major shippers are avoiding the waterway, through which 15 percent of global maritime commerce passes, choosing instead to reroute vessels around the Cape of Good Hope.

Osama Rabie, head of Egypt’s Suez Canal Authority, said in an interview with Asharq TV that revenues had fallen by 44 percent so far in January.

The restricted availability of foreign currency in the Egyptian economy is placing additional pressure on the funding profiles of the country’s banks, with many choosing to further reduce foreign currency credit card limits.

“While these limitations do not yet warrant a selective default, we expect Egyptian banks’ foreign currency liquidity positions will continue to deteriorate,” S&P Global Ratings said in a note.

Delegates from the IMF have been in Egypt this month to discuss a $3 billion loan, which could be extended to as much as $5 billion, as well as a full programme of economic reforms.

Conditions for the loan are reported to include the potential floating of the Egyptian pound.

However, rather than switch to a free-floating currency, Egypt will devalue the pound to EGP40-45 to the dollar in March, from around EGP31 currently, analyst BMI said previously. 

According to the United Nations Conference on Trade and Development, trade volume through the Suez Canal has fallen by 42 percent in the past two months as a result of the attacks.

“The largest container ships are mainly those that no longer use the Suez Canal, [so] the decline in container volumes is even more significant,” said Jan Hoffmann, the organisation’s head of trade and logistics.

The weekly number of container ship transits fell by 67 percent year on year. 

Hoffmann added that tanker transportation is down 18 percent and bulk cargo ships (grain, coal, etc) by 6 percent, and gas transportation is suspended.

Earlier this week it was revealed that shipments of wheat through the Suez Canal have fallen by 40 percent year on year.

On Tuesday, Danish shipping and logsitics company Maersk announced that it had suspended westbound calls at the Saudi port of Jeddah and Oman’s Salalah port indefinitely.

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