time will tell
Egypt’s President Abdel Fattah al-Sisi addressed his compatriots on 26 April in a tone that he hasn’t used since coming to power in 2014 and in the presence of some opposition figures for the first time. In a meeting with hundreds of representatives from political and social forces, he acknowledged that Egypt was facing an unprecedented economic crisis.
The head of state said this current mess was a repercussion of the Russia-Ukraine war and the popular 2011 revolt. With his speech, he sent a clear message to those who might consider taking advantage of the current situation to revolt against his regime.
One of the solutions that Sisi has implemented to deal with the crisis – particularly the debt crisis – is selling $40bn worth of state assets to the private sector within four years.
The Egyptian president also instructed the government to adopt a plan to reduce the public debt and budget deficit, as well as measures to improve the business climate and attract foreign investors. In order to secure the consent – if not the silence – of the opposition, the head of state announced that the presidential pardon committee, which passes judgement on political prisoners, would be reactivated. On 27 April, more than 3,200 prisoners were released.
Debt and dependence
Since the beginning of the economic crisis in March, Egypt has been chasing foreign currency to pay its instalments and strengthen its foreign exchange reserves, which have fallen into the red zone (they have stabilised at $37.082bn). Arab countries were the first to come to Cairo’s rescue. On 30 March, Saudi Arabia announced that it had deposited $5bn in the Central Bank of Egypt (CBE) and injected another $10bn into the Egyptian market.
The day before, Qatar announced that it would invest $5bn in Egypt. Abu Dhabi’s sovereign wealth fund, for its part, has acquired the government’s assets in five local companies, for about $2bn. Egypt is also negotiating with the IMF for a new $7bn loan.
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“The Russia-Ukraine war has highlighted the Egyptian state’s total dependence on third countries for debt and the fact that it publishes false data on its economic results,” says Wael Tawfik, economic adviser to the opposition Socialist People’s Alliance Party (SPAP). “The Sisi government has a bad economic policy. Proof of this is that it takes out loans to finance mega-projects that are not studied, not prioritised and that do not generate any income to repay the loans.”
“Debt accumulation, coupled with strong state repression and the army’s control over a large part of the national economy, is not likely to reassure investors,” adds the economic adviser.
The situation is even worse as, according to a source within the European Central Bank (ECB), the country’s real foreign exchange reserves will not exceed $10bn, since the figure announced by the ECB includes deposits from the Gulf States to support Egypt.
According to the same source, the new $7bn IMF loan could be crucial. If no agreement is reached with the Fund, Egypt could ask its creditors to restructure its debt.
However, the IMF is urging Cairo to let the Egyptian pound (E£) float further. The goal is to get the Egyptian pound above 21E£ to the dollar, instead of the current 18.49E£. Studies are underway to carry out this new devaluation within the next two months.
In addition, our source at the ECB says that the state’s foreign currency debt is $391bn. This is a far cry from the figures published by the ECB on 18 April, according to which the external debt was $145bn.
Short of solutions, Egypt is relying on its assets to replenish its foreign exchange reserves. In addition to selling $40bn in assets over four years, Sisi has instructed the government to list state-owned companies, as well as military-owned companies, on the stock market by the end of 2022.
Imports blocked
But the most important measure is to reduce imports. On 17 April, the Ministry of Trade and Industry decided to stop importing 1,000 foreign brands, on the pretext that they do not have a permit to export to Egypt. These brands include companies that have been active in the Egyptian market for decades, such as the multinational Unilever, the Saudi firm Almarai and the South Korean group LG.
The state has also decided to suspend many of its major ongoing projects. A source within the Administrative Capital For Urban Development (ACUD) confirmed that 90% of the work on the new administrative capital, which this body supervises, had been suspended since March. Ministerial relocation has been postponed until further notice.
Suspending ongoing projects and privatising companies could have negative consequences. “Selling public companies could lead to a new wave of layoffs among workers and, consequently, to social protest,” says Tawfik.
The latter recalls that privatising public companies was one of the reasons for the 2011 revolt against President Hosni Mubarak. This opinion is shared by our ECB source, who believes that the painful sale of public assets could provoke “a clash between the people and the government.”
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