For nearly a decade, Egyptian President Abdel Fattah al-Sisi has promised his people to revive the economy and build a new country. But when Egypt marks this year the tenth anniversary of the coup that brought the former army chief to power, Egyptians will find little reason to rejoice.
Instead, tens of millions of people will struggle to put food on their tables as the Egyptian pound plunges to record lows and inflation soars to more than 20 percent. The private sector has been suffering from a shortage of foreign exchange for about a year which is suffocating businesses. Egypt is a country in crisis.
Like much of the world, the Arab country has been hit hard by the Covid virus and is experiencing headwinds caused by Russia’s war in Ukraine. But Sisi’s authoritarian regime is also squarely to blame as he presided over a country living beyond its means.
Last year, Cairo had to go to the International Monetary Fund for the fourth time in six years. Even before that $3 billion loan was secured in October, Egypt was the second largest debtor to the fund, after Argentina. The core of its problems lies in an over-reliance on the hot cash flowing into its domestic debt as a source of foreign currency, and the muscular expansion of the military’s footprint across the economy.
The weaknesses of the first were exposed when investors pulled some $20 billion of Egyptian debt around the time Russia invaded Ukraine. Egypt, which has been paying the world’s highest real interest rate to attract portfolio inflows while artificially propping up the pound, was forced to turn to the Gulf states for bailouts. Since then, the central bank has devalued the pound in stages to balance supply and demand in the forex market. It agreed with the International Monetary Fund to move to a flexible exchange rate, with the pound falling by about a third against the dollar since October.
The deeper problem is the military’s role in the economy, which extends from petrol stations to greenhouses, pasta factories, cement factories, hotels, transportation and beyond. It also supervises hundreds of state infrastructure development projects, 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 has impeded foreign direct investment that would generate jobs and a more sustainable source of hard currency. However, since the el-Sissi regime first went to the International Monetary Fund for a $12 billion bailout in 2016, the fund and donors have inexplicably swirled around the issue while Cairo quashed the internal debate.
The IMF appears to be delaying in addressing the problem with the latest loan. It says Cairo is committed to reducing the “state’s footprint” in the economy, including in 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 Ministry of Finance twice a year and provide information on any “quasi-fiscal” activities to improve transparency.
It is now up to the International Monetary Fund and donors to use their influence to ensure that the military-led regime lives up to its commitments. After making some reforms in 2016 to secure the $12 billion loan, the government has continued to expand the role of the military, 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 the Gulf states will always bail out Cairo. But the reality is that with an estimated 60 million 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 should pressure Sisi to make good on his pledges.