Holidays in Turkey and Egypt will become cheaper: Russian tourists will benefit from devaluation

The expert named the country to which a tour may be the most affordable for our compatriots

The cost of a tour to Egypt in February 2024 increased by 14.4% compared to January. Last month, holidays in Turkey became 10.9% more expensive for Russians, and in the UAE – 6.4% more expensive than at the beginning of the year. This is evidenced by Rosstat data. However, already in the spring the situation in these most popular destinations for Russian holidays abroad may radically change to the opposite – due to the devaluation of local currencies. The head of the analytical department of the BKF bank, Maxim Osadchiy, spoke about the reasons for their fall and the unexpected consequences for MK’s compatriots.

— What is happening to the currencies of the most popular holiday destinations for Russians?

— The main direction of outbound tourism for us is Türkiye. Citizens of our country made 4.1 million trips there in 2023. In second place is the United Arab Emirates (UAE), where 1.3 million compatriots vacationed. Egypt is in third place: more than 1 million Russians took tours to the Land of the Pyramids last year.

If the UAE has no problems with its national currency, because the dirham is firmly tied to the dollar, then both Turkey and Egypt are experiencing very great financial difficulties. A common headache for these countries is the devaluation of the national currency. But while in Turkey the devaluation of the lira is more or less manageable, Egypt is experiencing an acute phase of a currency crisis.

– How does it manifest itself?

– The Egyptian pound collapsed on March 6 by 63% – from 30.85 pounds per US dollar to 50.3. But just a couple of years ago, in March 2022, the Egyptian currency exchange rate was 15 pounds per unit of American currency.

— What is the reason for such a decline?

– There are several of them. Firstly, the latest, March collapse of the Egyptian pound is a consequence of the Houthi attacks, which caused a sharp decrease in traffic in the Suez Canal due to the aggravation of the situation in the Red Sea and, accordingly, a significant reduction in the inflow of currency into the Egyptian budget. Secondly, other geopolitical problems also affect the country’s economy: the Russian-Ukrainian conflict has caused a reduction in grain imports to Egypt. The third reason is related to the internal politics of the state itself. Ambitious investment projects of President Al-Sisi (construction of the new capital of Egypt, a backup of the Suez Canal, etc.) contributed to the growth of the budget deficit.

— Is the situation different in Turkey?

— There, the main reasons for the devaluation of the national currency are not so much geopolitical shocks as the excessively soft budgetary and monetary policies of the authorities. Economic growth was stimulated at the expense of price stability. The growth of government spending due to increased payments to pensioners and government employees contributed to the growth of the budget deficit. In 2023, Turkey’s budget deficit increased 7 times and reached $59 billion compared to $8.6 billion in 2022. “Non-independent” Central Bank of Turkey (i.e., not capable of pursuing its own independent monetary policy. – N.T.) did not oppose this dangerous course, keeping the key rate at a level completely insufficient to counter the inflationary spiral. In October 2022, inflation reached 85.5% in annual terms, while the key rate was then even managed to be reduced from 12 to 10.5%! It’s like putting out a fire with gasoline. It is not for nothing that such a non-standard approach to solving economic problems began to be called “Erdoganomics” – after the name of the Turkish president.

When the authorities came to their senses, it was already too late: the inflation flywheel had spun. In February 2024, inflation reached 65.7%, while the key rate was at 45%.

— What is the connection between inflation and devaluation?

— If you don’t go into details, it’s simple. Inflation is unearned money. For example, they increased social benefits to increase the loyalty of the electorate. This money immediately rushed to the market, the population’s demand for imports increased, and exports decreased due to increased domestic consumption. Accordingly, the influx of foreign currency weakened, and so the national currency devalued. As a result, a trade balance deficit (trade balance is the difference between exports and imports, a trade balance deficit means that the trade balance is negative, that is, exports are less than imports. – N.T.) from Turkey in 2023 amounted to $106 billion.

There is also a reverse relationship: devaluation increases the price of imports and thereby contributes to increased inflation, this is the so-called “pass-through effect.”

— Let’s return to prices for tourist packages. Where will it ultimately be cheaper for Russians to vacation?

— Holidays in Egypt may become cheaper for compatriots, despite Rosstat data for February. But given the severity of the currency crisis, caution must still be exercised with this tourist destination, as the likelihood of unrest similar to the events of 2011, when President Hosni Mubarak was overthrown, is also growing. By the way, then the cause of popular unrest was economic problems caused by the cessation of grain supplies from Russia (Russia introduced an embargo on grain exports in 2010 due to drought. – N.T.), as well as shark attacks on tourists in Sharm el-Sheikh, which is why the tourist flow has sharply decreased. Therefore, it is hardly worth rushing to enjoy a cheaper holiday in Egypt. Here we can recall Pushkin’s advice from “The Tale of the Priest and His Worker Balda”: “You, priest, should not chase after cheapness.” However, if we recall recent history, some Russians willingly traveled on “last minute tours” to unrest-ridden Thailand and Turkey, shaken by earthquakes, so the problems of Egypt against this background are unlikely to stop them.