Can Egypt rely on its Diaspora to fund its development?
Egypt's rising remittances are strengthening its economy, providing a vital source of funding for development and poverty reduction.
Egypt is one of the largest recipients of remittances globally. Over 3.6 million Egyptians are estimated to reside abroad, with significant numbers living in countries such as Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Jordan, Italy and the United States. As one of the leading labour-exporting countries globally, Egypt has relied heavily on migrant remittances which have become a key source of external finance for the country surpassing aid and FDI inflows. According to the Egypt Central Bank (CBE), total remittance inflows in 2024 amounted to US$ 29.4 billion, constituting 51.3% growth over previous year estimates.
Migrant remittances have become a key source of external finance for the country, surpassing aid and FDI inflows
Before this surge, remittances to Egypt had slowed, primarily due to restrictions on the exchange rate, which led many Egyptians to rely on informal channels for sending money. Additionally, limited access to bank accounts, low digital literacy and insufficient digital infrastructure have hindered the use of online remittance services. Furthermore, the cost of remitting funds to Egypt, as is the case in many low- and lower-middle-income countries, is significantly higher compared to advanced nations, exceeding the SDG target of 3% transaction cost.
In response to these challenges, the Central Bank of Egypt (CBE) implemented reform initiatives designed to encourage remittances through formal channels. These measures included liberalising the Egyptian pound which unified the exchange rate and eliminated the black market rate, thus boosting confidence in the financial system and redirecting remittances into official banking channels. The CBE also introduced savings products specifically designed for the diaspora, such as the Tomorrow’s Pension program. This initiative encourages Egyptian expatriates aged 18 to 59 to contribute at least US$500 annually for a minimum of five years, promoting long-term financial security.
Additionally, the CBE focused on digitalising remittances to enhance financial inclusion, making the process of sending and receiving money more convenient and transparent. A pilot program by the CBE, supported by the World Bank, focused on digitalising remittances, with a particular emphasis on women in rural areas. This initiative resulted in a significant increase in remittance inflows. Within a year of the program's implementation, both the number and value of international remittances sent by women increased by 13%, with approximately 250 000 new accounts being opened.
The success of these measures has been crucial not only in terms of remittance volumes but also in stabilising Egypt’s foreign exchange and financial markets. As global aid decline and many donors withdraw their support for Africa, Egypt's rapidly increasing remittances offer a sustainable financing solution to help mitigate potential adverse effects.
Remittances to Egypt, like in many other countries, are sent to families and primarily used for daily household consumption which contributes to poverty alleviation. An illustrative scenario modelled for this paper indicates that increasing remittances by 50% from 2026 to 2035 could lift an additional 2.9 million Egyptians above the extreme poverty line of US$3.65 per day, compared to the business-as-usual scenario by 2035. In addition, the scenario will drastically reduce inequality over the business-as-usual scenario in the same period. Even if aid were reduced by the same proportion over this period, it would not counteract this reduction in poverty and inequality. This suggests that if the surge in remittances continues as observed since last year, it could offset some of the negative impact of a decline in aid on poverty reduction. The significant impact of remittances inflows on poverty is expected given that more than half of remittances are sent to rural areas, with over 75% used for necessities such as food, medical expenses, housing costs and school fees.
Notwithstanding this powerful effect of increased remittances on poverty in Egypt, its impact on economic growth is limited. To fully capitalise on the potential of these inflows, it is essential that some remittances are directed toward productive sectors of the economy. The Tomorrow’s Pension program concept to encourage diaspora savings is promising, but further measures are necessary to attract long-term capital from Egypt's diaspora. One such measure, diaspora bonds (bonds issued by a country to its expatriate or diaspora community), has frequently been proposed as a means to encourage the diaspora community to invest in their home country. Globally, Israel and India are often cited as success stories. Israel has raised US$46 billion since 1951 through diaspora bonds. Similarly, India has raised over US$11.3 billion, primarily for infrastructure projects, which also helped the country avert a balance of payments crisis in 1998.
In Africa, some countries have also experimented with the idea of diaspora bonds, although not as successfully as India and Israel. In 2011, Ethiopia launched a diaspora bond to help finance the Grand Ethiopian Renaissance Dam after failing to do so in 2008. Kenya introduced a licensed investment fund in 2020 for citizens living overseas to invest in development projects following an earlier diaspora bond issued in 2011. However, all these countries have only been able to issue one successful round of diaspora bonds. Similarly, Nigeria issued its first successful diaspora bond in 2017, marking a significant step in leveraging remittances for national development. Although there are plans to issue another US$500 million diaspora bond, this is yet to materialise. Egypt itself has considered diaspora bonds in the past. In 2014, the country floated a bond to support the enlargement of the Suez Canal project. However, the diaspora contribution of less than 1% of the total certificates was below expectations.
The success of diaspora bonds is usually based on the trust the diasporan community has in their home government that their investment will not be misappropriated. It is also based on their attachment towards their home country and a perceived moral obligation to contribute to its development. With the Egyptian economy on the path of recovery, coupled with its economic reforms, particularly in the financial market, it is time for Egypt to leverage its huge diasporan population to fund its development aspirations, learning from the failures and success stories of others. Its recent success in issuing a US$2 billion international bond in 2024, a US$1.5 billion Sukuk bond in 2023, and a US478.7 million Sustainability Panda bond in 2023, provides a good opportunity to further expand its diaspora bonds.
The success of diaspora bonds is usually based on the trust the diasporan community has in their home government
To achieve this, programs that engage the diaspora community should pique their interest in funding the development of their country. In 2019, Ghana started the Year of Return Initiative which was highly patronised by its diasporan community; this can be replicated in Egypt to build stronger ties with its diaspora. However, no matter how patriotic the diasporan community is, they will not invest in bonds if the risk of default is high. Recent debt defaults and restructuring in countries like Zambia and Ghana often scare investors away. To avert this, diaspora bonds should focus on only viable, specific economic projects that can repay investors and ensure a recoupment of their investment. Transparency in bond management and governance is key to endangering confidence in the diasporan community.
Image: Pascal Rey/Flickr
