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Wednesday, 5 August 2020

Egypt’s tourism losses could top 2% of GDP this year, IMF says

Egypt could lose out on tourism revenues worth more than 2% of its GDP this year due to global travel restrictions, the International Monetary Fund (IMF) said in its 2020 External Sector Report. The forecast is based on a scenario laid out in a UN World Tourism Organization (UNWTO) study in which all travel restrictions are gradually lifted as of September, which would still see 2020 tourism receipts fall 73% y-o-y. The IMF says pandemic-induced tourism losses will likely be incurred mostly by “large net tourism exporters,” including Egypt, Costa Rica, Greece, Morocco, New Zealand, Portugal, Spain, Sri Lanka, Thailand, and Turkey. Tourism revenues, meanwhile, fell 11.2% y-o-y during the quarter to its lowest level in any three-month period over the past two years, Central Bank of Egypt data released last month showed.

What’s the “external sector”? In basic terms, the parts of a nation’s economy that interact with the economies of other countries. Think tourism and remittances, for example.

Don’t expect next year to be brilliant: “Although uncertainty is high, the effects on tourism may persist to some extent in 2021 and beyond,” says the IMF, citing a UNWTO survey expecting tourism demand to start recovering only in 2021.

Remittances will also take a beating in 2020: Quoting forecasts of an average 20% drop in the global flows of worker remittances in 2020, the IMF warns of “significant hardship” for remittance-reliant households and small businesses. This will be particularly pronounced for Egypt and other countries in which remittances are a large part of the economy. Remittance flows into Egypt — and other economies including Pakistan, Guatemala, the Philippines, and Sri Lanka — account for more than 5% of GDP. Remittances are vulnerable to the covid-19 crisis as migrant workers are both more exposed to the unemployment and wage loss risk and work excessively in hard-hit sectors such as food and hospitality, retail, and tourism, the fund said.

Remittances are forecast to “only partially” rebound by 5% in 2021, the fund added. Tourism receipts and remittances, two key sources of foreign currency for Egypt, came under increased pressure earlier during the pandemic — dragging down the central bank’s foreign currency reserves for three months straight.

Other key takeaways from the report:

  • Egypt and Turkey are among the countries witnessing a “significant decline” in FX reserves due, in some cases, to currency “depreciation pressures”;
  • Global trade is forecast to shrink by 12% in 2020 in a scenario that can be likened to what was witnessed during the global financial crisis;
  • Global current account deficits and surpluses are forecast to narrow by 0.3% or of global GDP in 2020. Deficits and surpluses stood at just below 3% of GDP in 2019;
  • 2021 may not see a recovery across the board in the external sector;
  • Policymakers should engage in collective reform action to reduce global external imbalances once the pandemic abates, while continuing to focus on short-term economic “lifelines” to promote recovery.

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