Abdel Fattah al-Sisi came to power in June 2014 following mass protests in Egypt against the rule of the Islamist President Mohammed Morsi.
In his inauguration speech, Sisi promised to deliver “a new performance in the history of the Egyptian State” – one that could “support a giant economy.”
Following the turbulence of the Arab Spring and Morsi’s fractured tenure, Sisi pledged to “protect the rights of the poor,” with the country working together “so that every Egyptian [can] enjoy prosperity and happiness under a new Egypt that enjoys stability and prosperity.”
But as Egypt approaches a decade under Sisi's rule, the vision outlined in 2014 remains a distant prospect.
In December 2022, Egypt was forced to rely on a $3 billion bailout loan from the International Monetary Fund (IMF) – its fourth package since 2016.
While Egypt’s economic difficulties are deeply rooted, the country has found it increasingly difficult to meet its financial obligations since the onset of the coronavirus pandemic in 2020.
For one, the almost complete halt in international travel caused severe disruption to Egypt’s tourism sector. Tourism represented around 14.5% of the entire national economy in 2019, but this revenue was almost entirely lost during the two years of the pandemic.
Tourism is also a significant source of foreign exchange inflows to the country. The severe restrictions on international travel have therefore contributed to a crippling shortage of foreign currencies, in particular US dollars.
This is a particular problem in the context of Egypt’s debt crisis. The country’s sovereign debt has soared, with official figures stating that the debt now stands at over $145 billion – although many suspect the real number is higher.
Because most external debt is denominated in US dollars, dwindling foreign reserves have made it more challenging for Egypt to service this debt. A stronger US dollar, along with higher interest rates globally, also mean that debt repayments are even more expensive in dollar terms.
These economic conditions have led to declining standards of living for the Egyptian people. Partly because of the war in Ukraine, which has highly disrupted global grain supplies and caused food shortages across the Middle East and North Africa (MENA), Egypt is confronting rapidly rising prices for essential goods.
Inflation is currently at more than 20% – a rise of over 300% since January 2021. This inflation has come at a time when Egypt is currently running a substantial trade deficit, therefore having the effect of pushing up prices for goods still further. Inflationary pressures are especially damaging for the approximately third of the Egyptian population that lives in poverty.
The various IMF programmes which Egypt has negotiated are designed to alleviate some of these pressures. In particular, there have been numerous attempts to try and make the economy more transparent and less dominated by the military.
Sisi, who is a former army general, has often tasked the military with conducting civilian economic activities that should be the domain of the government and private sector – especially when it comes to infrastructure projects. This has limited the competitiveness of Egypt’s business and has been a drag on economic growth.
While many in Egypt welcome these IMF-initiated reforms, there are also fears of adverse consequences. One of the IMF’s objectives is to liberalise Egypt’s financial system, including foreign exchange markets.
In December, the IMF noted that “the package includes a durable shift to a flexible exchange rate regime.” Since then, the value of the Egyptian Pound has plummeted to record lows against the dollar. This currency devaluation could cause inflation to be elevated further by making imports, which are usually priced in dollars or other international currencies, more expensive.
The IMF also made austerity measures – or “fiscal consolidation to ensure downward public debt trajectory” – a condition of the package. While many economists believe this to be necessary for both the short and long term, is enough being done to protect the Egyptian people in face of severe economic difficulties?
It is worth noting that Egypt’s economic outlook is not necessarily as bleak as the current situation indicates. Mathias Althoff is a Vice Chief Investment Officer and Partner at Tundra Fonder, a Stockholm-based asset manager that specialises in frontier markets. He told The New Arab that there are many reasons to be optimistic about Egypt’s longer-term trajectory.
“The long-term prospects are very, very good for Egypt,” Althoff said. “The country has proximity to markets in Europe, the Gulf, as well as the rest of Africa. They have the great assets of both blue-collar and white-collar workers, a population of over 100 million people, and quite good infrastructure.”
He suggested that Egypt could emerge as one of the world’s most important production hubs, particularly as companies seek to move their production lines away from China.
In the shorter term, however, there are clearly serious challenges for Egypt to navigate. Inflation, unemployment, and the trade deficit are all at worrying levels. While structural reforms are clearly required to open up the Egyptian economy, and reduce the dominance of the military in economic life, liberalising measures could have the more immediate effect of increasing pressure on Egypt’s poorest.
There are no easy answers as Egypt attempts to find a path through the difficulties engulfing its beleaguered economy.
Harry Clynch is Features Editor at Disruption Banking. He writes on politics, international affairs and international markets. His words have appeared in The Spectator, UnHerd and others.
Follow him on Twitter: @clynchharry