For years, foreign capital has become Egypt into waves, attracted by high interest rates and government bonds that promise rapid yields. Foreign capital, or called “hot money”, has become a double -edged sword in Egypt ‘economic plays, while the country faces repeated monetary devaluations and growing inflation.
“Hot money” describes the Fast movement o Capital through international borders in persecution or rapid profits, often Through Investments in high -performance bonds, values and tasor invoices. Unlike long -term investments, this capital is not anchored In physical assets or durable projects and does not contribute significantly to the economic development of a country.
One of the limited merits of hot money lies in its ability to offense Liquuidity in dollars, special for economies willing to exchange high interest rates for capital tickets.
After the flotation of the 2016 Libra, which saw the currency fall Around 8 to 18 per dollar, Egypt Sought Attract this type of investment to relieve the tension of a conduct budget deficit.
As interest rates increased sharply, the Egyptian government affair The debt through the invoices and bonds of the Treasury, with high yields, fiscal exemptions and minimal restrictions in trade or retirement, allowing investors to buy them, effectively lending to the State.
In return, the government pays interest, providing profits for the lender. Once the debt reaches the expiration, usually after an established period of months or years, the investor receives the original amount plus accumulated interests.
Conditions in 2016 gym Egypt in a favorite destination for foreign investors pursuing high yields of government debt and other financial assets. In less than a year, foreign investors injected Around USD 17 billion (EGP 862.55 billion) in the country’s debt market.
However, capital influx came with a warning. Such flows are acutely sensitive To changes in interest rates, inflation and broader economic conditions, or which leads investors to quickly reassign funds in the markets in search or better yields. The impermanence of hot money makes it inherently volatile, with investors capable of getting its capital at any time.
When global conditions changed, such as Covid-19 pandemic in 2020 or the Russian Ukraine invasion in 2022, billions of dollars in hot money they have fled Egypt almost overnight, with the country discharge USD 22 billion (EGP 1.2 billion) duration of the Ukraine crisis. Such sudden outputs motivated Acpeciation of acute currencies, exhausted foreign reserves and fed inflation, exerting intense pressure on the country’s financial system.
Former Finance Minister Mohamed Maait confirm That hot money dependence is one of the reasons for the economic crisis that returns to Egypt, such as “It comes for high yields, and when a shock occurs, it leaves the country.”
“We learned from hot money flights, three times in a row, in 2018, 2020 and 2022”, Mowing saying. “The State’s strategy is now that the government will not depend on this type of money again.”
Despite the scarcity of currencies of Ongeign, Egypt continued To increase interest rates and devalued the pound to attract hot money, Sacrification Long -term investments, higher costs of indebtedness and high inflation than erosions The purchasing power of common Egyptians.
In the light of these challenges, Prime Minister Mostafa Madboulny reiterated The need to change the approach to more stable forms of foreign direct investment (FDI), which create jobs and encourage sustainable growth, instead of depending on volatile fluctuations of hot money.
