CAIRO (Reuters Breakingviews) - Jamal Khashoggi’s murder will have repercussions well beyond Saudi Arabia. The grisly affair poses a potential economic risk for one of the kingdom’s most loyal allies: Egypt. The Arab nation of 100 million is highly dependent on foreign exchange remittances from Egyptian workers in Saudi, and a steady flow of tourists from the Gulf, both of which could be threatened by instability in Riyadh.
Any fallout, such as U.S. sanctions, from the killing of the Saudi journalist by agents of the Riyadh government could dent Egypt’s recovery. Following a currency devaluation in 2016 and austerity measures, a steady flow of dollars from Saudi is critical to buttressing reserves as the Egyptian central bank struggles to reduce inflation and interest rates.
Borrowing costs stand at 17.75 percent for overnight loans. As a result, lenders are charging firms, including multinationals, more than 24 percent to borrow in local currency for six or seven years. That’s holding back the capital investment needed to jumpstart growth and reduce youth unemployment from more than 20 percent, says the chief executive of a top Egyptian bank.
The challenge for central bank boss Tarek Amer is to cut rates without triggering a run on the Egyptian pound, which has held up relative to other emerging market currencies. Though foreign holdings of treasury bills have dropped to about $11 billion from $22 billion in March, Egypt’s foreign exchange reserves rose to $44.5 billion in September, thanks to other inflows.
Here’s where Saudi comes in. Remittances from expatriate Egyptians surged by nearly half to $26 billion in the fiscal year ended in July. Most of this came from the more than 1 million Egyptians working in Saudi. It’s Egypt’s top source of dollars, dwarfing tourism, which the government expects to surpass $8 billion this year.
President Abdel Fattah al-Sisi has cultivated Saudi Crown Prince Mohammed bin Salman, known as MbS, who made Egypt his first visit after becoming heir apparent. Egypt signed up to MbS’s blockade of Qatar and his pet project, a mega-city on the Red Sea. Cairo hoped this would insulate Egyptians from the monarch’s “Saudization” of the workforce, part of his Vision 2030 economic reforms.
But by scaring off global investors, Khashoggi’s killing has clouded the outlook for MbS’s grand plans. That’s a problem for the young royal’s subjects – and by extension for his friends on the Nile.
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