Round 4
It is now fair to ask when patience will be exhausted. Four times within six years, the Egyptian government has sought a bail-out from the International Monetary Fund (IMF).
A long time in the making, the decline of the Egyptian economy is accelerating. Its currency, the Egyptian pound, has, officially, lost nearly half its value over the past year, and 200 per cent since 2012. Yet, in a thriving currency black market, pounds trade well below even the drastically lower official rate. The current account in the balance of payments has recorded large deficits for more than a decade. The federal government’s estimated budget deficit for 2022, at 7.8 per cent of GDP, is among the highest in the world. Nearly half of its revenue is required just to service accumulated debt, which amounts to 90 per cent of GDP, and a large portion of what’s left has been spent on infrastructure megaprojects - some of dubious value, such as the building of a new capital city - that have been a hallmark, and likely the folly, of President Sisi’s rule. The private sector is moribund, as reflected in the decline of the purchasing managers’ index for 75 of the last 84 months. The official measurement of inflation is 21 per cent, though it is almost certainly much higher, especially for food. As this economic deterioration has dragged on, daily life for the majority of the 100m Egyptians has become increasingly miserable: the World Bank estimates that a third of them live on less than $2 a day, and another third are close to that threshold.
The IMF has once again stepped forward. As with the 2016 $12 billion bail-out, the most recent deal with the Fund struck in December 2022 ($3 billion over 46 months) comes with conditions. A “flexible” exchange rate regime is to be implemented, and the government is to sell its positions in many state-owned firms, including army-controlled companies like Wataniya, which operates gasoline stations, and Safi, a bottled-water company. (Similar promises in 2016 went unfulfilled.) Bread subsidies are to remain constrained, despite a huge jump in the price of imported wheat related to the war in Ukraine, the principal source of this critical foodstuff. In such a repressive country, anger is widespread amongst the populace, if still below the surface, and with these new IMF conditions (assuming they are implemented), it will only worsen.
The Fund expects the December program to “catalyze additional financing from Egypt’s international and regional partners”. A decade ago, when Sisi seized power in a coup, Gulf states provided $25 billion in aid, in the hope that it would prevent further violence and economic collapse. This level of assistance seems unlikely this time, and, indeed, frustrated Gulf states are instead picking off cheap Egyptian assets; there is even talk they may be eyeing the purchase of the Suez canal.
Egypt is a key Western ally in a politically volatile region. As such, the IMF would appear to have an unspoken mandate to do all required to avoid an implosion. But it should insist that its financing conditions - particularly those pertaining to structural changes in the economy - be finally implemented. Continuing to support a regime that refuses to reform meaningfully will only deepen the crisis, in Egypt and the region.