For almost a decade, Egypt’s president Abdel Fattah al-Sisi has promised his people that he would revive the economy and build a new state. But when Egypt this year marks the 10th anniversary of the coup that brought the former army chief to power, Egyptians will find little to cheer.
Instead, tens of millions of people will be struggling to put food on their tables as the Egyptian pound has fallen to record lows and inflation soars above 20 per cent. The private sector is grappling with an almost year-long foreign currency shortage that is choking businesses. Egypt is a country in crisis.
Like much of the world, the Arab state was hit hard by Covid and is enduring headwinds caused by Russia’s war in Ukraine. But Sisi’s autocratic regime is also squarely to blame as it has presided over a state living beyond its means.
Last year, Cairo was forced to go to the IMF for the fourth time in six years. Even before that $3bn loan was secured in October, Egypt was the fund’s second biggest debtor after Argentina. At the core of its problems is an over-reliance on hot money flowing into its domestic debt as a source of foreign currency, and the muscular expansion of the military’s footprint across the economy.
The vulnerabilities of the former were exposed when investors withdrew about $20bn from Egyptian debt around the time Russia invaded Ukraine. Egypt, which had been paying the world’s highest real interest rate to attract the portfolio inflows while artificially propping up the pound, was forced to turn to Gulf states for bailouts. The central bank has since been devaluing the pound in phases to bring supply-demand equilibrium to the forex market. It has agreed with the IMF to move to a flexible exchange rate, with the pound down about a third against the dollar since October.
The deeper problem is the military’s role in the economy, which stretches from petrol stations to greenhouses, pasta factories, cement plants, hotels, transport and beyond. It also oversees hundreds of state infrastructure developments, including vanity projects such as building a new administrative capital and cities in the desert.
It is a phenomenon that has crowded out a private sector wary of competing with the most powerful state institution, and stymied foreign direct investment that would generate jobs and a more sustainable source of hard currency. Yet since Sisi’s regime first went to the IMF for a $12bn bailout in 2016, the fund and donors have, inexplicably, tiptoed around the issue while Cairo quashed internal debate.
The IMF appears to be belatedly addressing the issue with the latest loan. It says Cairo has committed to reducing the “state footprint” in the economy, including military-owned companies, by withdrawing from “non-strategic” sectors and through asset sales. State-owned entities will also be required to submit financial accounts to the finance ministry on a twice yearly basis and provide information on any “quasi-fiscal” activities to improve transparency.
It is now up to the IMF and donors to use their leverage to ensure the military-led regime meets its commitments. After conducting some reforms in 2016 to secure the $12bn loan, the government continued to expand the army’s role, while failing to make the serious changes the economy needs.
It is often assumed that Egypt is too important to fail, and that donors or Gulf states will always bail Cairo out. But the reality is with an estimated 60mn people living below or just above the poverty line and getting poorer, the state is already failing its citizens. If Cairo’s allies are serious about helping the country, they must pressure Sisi to act on his pledges.
