The Egyptian government’s expectations pinned on the Suez Canal have been dampened by a report from credit ratings provider Moody which claimed that earnings to be generated from the canal after the opening of the second waterway last week will come “at a much slower pace.”
The construction of the second 32km-long Suez Canal and the enlargement of the old Suez Canal took less than a year and cost around $8 billion.
A key source of foreign currency for Egypt, the Suez Canal is one of the world’s busiest waterways. It links the Mediterranean and Red seas, allowing ships to save financial resources and time when navigating between Asia and Europe by circumventing the African continent. The Egyptian government is expecting to increase its annual earnings from $5.3 billion to around $13 billion but Moody stated that earnings will depend on global trade.
The credit ratings provider stated that “the degree of support (for Egypt’s credit quality) will depend on acceleration in global trade growth, which seems unlikely to materialize quickly” and forecasted an external current account balance deficit of around 3% of the GDP in 2016 fiscal year. There will be “limited credit-positive effects” in 2015.
Egypt’s hopes of earning $13 billion per annum from the Suez Canal could only be attained if global trade grows by at least 10% according to Moody. The statement explained that “Suez Canal receipts would grow at a much slower pace, thereby limiting the positive effects on Egypt’s external payments position” and might reach around $5.6 billion in 2023 if the historical average growth of the canal is taken into consideration.