Economy

Red Sea crisis could drop Suez Canal revenue by 60%

May 22, 2024, 1:23 AM

The number of ships traversing the Suez Canal has almost halved and Egypt expects a substantial revenue fall

Egypt’s finance minister issues warning
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Suez Canal revenues may decrease by up to 60 percent due to elevated tensions in the Red Sea, according to assessments cited by Egyptian finance minister Mohamed Maait.

Speaking at a ministerial event at Cairo University on Monday, Maait said the revenue fall would further exacerbate the state’s budget deficit which has grown to EGP120 billion ($2.6 billion) a month.

The minister did not confirm what time frame the revenue decline is forecast for, or when it is compared against.

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Along with the Suez Canal issues, Maait said the government is facing other budgetary pressures such as the increased cost of fuel subsidies, which is nearing EGP200 billion a year.

This was a natural result of the high price of oil, increased shipping costs and the devaluation of the Egyptian pound against the dollar, he said.

The draft budget for financial year 2024-2025, which begins on July 1, had originally earmarked EGP147 billion for fuel subsidies.

Since March, the Egyptian pound has slid 34 percent against the dollar, opening up a long-awaited extended fund facility with the IMF and subsequent financing deals, but adding to inflationary concerns.

Maait said inflationary pressures following the devaluation had contributed to an increase in the value of national imports to $4 billion a month.

According to the Finance Ministry’s most recent financial statement, the total state budget deficit will increase to 7.2 percent of GDP, with debt-to-GDP expected to reach 90 percent by next month.

“We started a corrective phase of the Egyptian economy to overcome external and internal challenges and limit potential risks,” Maait said on Monday.

Suez troubles

Since mid-November Yemen’s Ansar Allah group, widely referred to as Houthis, have attacked Israel-linked ships in the Red Sea in response to the Gaza conflict.

According to data from the International Monetary Fund’s Port Watch, the number of cargo ships traversing the canal in the first four months of 2024 was around half that recorded in the same period in 2023, dropping from an average of 47 ships a day to 24.

The reported drop in canal revenues comes despite the Suez Canal Authority hiking transit fees by between 5 percent and 15 percent from January 15.

Danish shipping major Maersk said earlier this month it expects the Red Sea disruption to lead to a 15 to 20 percent industry-wide capacity loss on the Asia to North Europe and Mediterranean routes in the second quarter of 2024.

The complexity of the situation in the Red Sea has intensified over the last few months, the company said in an advisory to its customers.

It added that vessels had been rerouted around the Cape of Good Hope for the “foreseeable future”.

The World Trade Organization was more optimistic in its annual report in April, forecasting that Middle East goods export volumes, which include oil and gas, will expand 3.5 percent this year, adding that disruptions to Red Sea maritime trade are proving less severe than first feared.