Without early presidential elections and a significant and fundamental reorientation away from the brutal regime’s methods, Egypt will continue to slide toward disaster.
It was predicted in 2019 that Egypt would soon face bankruptcy and a failure of the state to provide for its citizens’ basic needs given its current course.
Some people disagreed with this opinion, arguing that Egypt was rapidly developing. The IMF continued to provide essentially unconditional support while foreign hedge funds kept buying Egyptian government securities.
But over the past three months, the Egyptian pound has suffered, most importers can’t buy foreign currency, and prices have skyrocketed. One estimate put the rate of inflation at an unhealthy 88 percent.
Egypt’s overall debt has increased by 93% in just five years, and from the fiscal years 2020–2021 to 2023–2024, debt service is projected to rise by 62 percent. Debt accounted for nearly 50% of spending in the 2022–2023 budget.
In other words, Egypt needs to borrow to survive, and borrowing more is the only way to pay off its debt.
The jig is up, even given the limited parameters under which the Egyptian parliament can function. One MP said in their remarks that “[t]he government does not have a vision to stop borrowing or to limit the use of borrowing to close the deficit and increase resources.”
Fundamentals
The answer to the question of what has happened to the economy’s fundamentals is that over the past ten years since the military took over the country, those fundamentals have been steadily destroyed.
Egypt’s access to foreign exchange is constrained. Suez Canal revenue and international travel have historically been the two main sources. Both have been severely impacted—first by unrest, then by the Covid-19 pandemic, and now by the conflict in Ukraine.
The government, meanwhile, missed numerous chances to advance, modernize, and expand the economy.
The government decided to concentrate all economic activity in the control of the military rather than expanding the private sector and the potential consequences for real GDP. In modern Egypt, the military is involved in virtually every aspect of economic life, including the media, entertainment, food, lodging, construction, and pretty much everything else.
Egypt is not currently open for business as a result. Actually, if the private sector isn’t already technically dead, it’s at least on life support.
The military has been concentrating on large-scale projects that have no bearing on economic growth while being led directly and personally by President Abdel Fattah el-Sisi.
$55 billion has been taken out of the economy to fund the new “Administrative Capital City” emerging in the desert. An unnecessary Suez Canal expansion siphoned off an additional $9 billion with hardly any increase in revenues.
It’s not hard to figure out how we got there. First, both on the monetary and fiscal sides, the regime took a course unrelated to economic understanding. Second, the IMF and other international powers have overwhelmingly praised him and his economic policies.
Third, a reported $45 billion was spent on the purchase of weapons, despite the absence of any clear geopolitical risk or necessity. Egypt, a nation with significant poverty and high levels of debt, surpassed China to rank third in the world’s imports of weapons between 2015 and 2019. Contrarily, spending on vital areas like health and education is consistently below even the minimums set by the constitution.
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