In my view, imposing any new fees or taxes on profits from so-called “hot money” would be counterproductive and risk undermining the attractiveness and transparency of Egypt’s investment climate as a whole.
Recently, a proposal has circulated suggesting the imposition of an additional tax on profits generated from foreign portfolio investment (FPI)—commonly referred to as “hot money”—if withdrawn before three years, citing Brazil’s past experience as a precedent.
In my opinion, implementing such a measure would be a misguided approach. While it may appear to address the issue of capital outflows and “exit losses,” it ultimately overlooks investors’ legal right to exit and the legitimate reasons that often motivate such movements. More critically, it would erode market confidence and weaken Egypt’s credibility as a transparent and open investment destination.
In this context, I would like to highlight several key points:
If the state faces significant losses or risks during sudden capital outflows, this is less a result of investor behaviour than it is a reflection of the state’s capacity to manage financial inflows and liquidity sensitivities before such exits occur.
Effective policymakers should anticipate and model these scenarios, deploying proactive macroeconomic management and liquidity tools to mitigate the risks of volatility. Penalising investors at the point of exit through taxes or fees is a reactive and inefficient measure compared to more constructive strategies—such as diversifying foreign currency sources, reducing fiscal and debt deficits, and attracting more foreign direct investment (FDI).
Egypt already possesses the institutional and technical expertise to manage foreign exchange liquidity risks, particularly after the lessons learned from the Russia–Ukraine crisis. Precautionary measures have since been developed to prevent similar shocks.
In short, protecting the market from the impact of sudden portfolio exits should be achieved through sound macroeconomic management and scientific risk modelling, not by restricting the free movement of capital. With a flexible exchange rate mechanism now in place, market forces can naturally absorb external pressures and achieve equilibrium without administrative or fiscal interference.
Drawing comparisons with Brazil ignores fundamental differences in economic context and policy objectives.
Brazil’s tax on short-term capital inflows was introduced defensively, to slow down the influx of speculative capital and contain the appreciation of the Brazilian real, which threatened the competitiveness of its exports.
Egypt, on the other hand, is in urgent need of attracting foreign currency inflows from all sources. Imposing taxes designed to delay or discourage outflows would stifle portfolio investment at its core, precisely when Egypt needs to boost short-term foreign currency liquidity.
What the Egyptian economy requires at this stage is more incentives, not restrictions—policies that encourage capital inflows, deepen financial markets, and signal confidence to global investors.
The defining feature of “hot money” is speed—it moves in and out of markets quickly, reflecting the inherent nature of short-term investments.
Currently, investments in government debt instruments with maturities ranging from three months to one year are already subject to a 20% income tax. Introducing an additional punitive tax on top of this would be economically unjustifiable and strategically damaging.
If such measures were to discourage current investors from remaining in the market, what incentive would there be for new investors to enter in the first place?
Foreign portfolio investors (FPIs) evaluate opportunities by comparing the highest real returns against the lowest perceived risks, while seeking markets that guarantee free movement of capital, transparent regulations, and a flexible exchange rate system.
Any restriction on exit freedom—whether through financial penalties or administrative constraints—would instantly raise Egypt’s perceived risk premium, pushing it beyond acceptable thresholds for international investors.
It is also essential to distinguish between foreign direct investment (FDI) and foreign portfolio investment (FPI). While FDI is long-term and rooted in physical assets, FPI is fast-moving, market-based, and inherently liquid. Portfolio investors expect the freedom to buy and sell on the stock exchange at any time, without time-based limitations or fiscal penalties. This freedom is not a privilege; it is a global standard and a cornerstone of modern capital mobility.
Imposing any new taxes or fees on “hot money” profits would be neither effective nor beneficial. Such measures would distort market dynamics, increase investor uncertainty, and contradict Egypt’s ongoing reform efforts aimed at improving market competitiveness and financial openness.
Investors should rest assured that such proposals remain purely theoretical—more fiction than fact. Egypt’s policymakers have long recognised that confidence and consistency are the true foundations of a sustainable investment environment. Protecting those principles—not taxing them—is the optimal path forward.
Mohamed Abdel Aal – Banking Expert
