[Salon] Egypt: A crisis reborn - ArabDigest.org Guest Post

A crisis reborn Summary: despite commitments to pull the military out of the Egyptian economy President Sisi has presided over greater economic militarisation while the country is carrying a massive and ever-increasing debt load that is being pushed onto the shoulders of poor and working class Egyptians. We thank our regular contributor Maged Mandour for today’s newsletter. Maged is a political analyst who also contributes to Middle East Eye and Open Democracy. He is a writer for Sada, the Carnegie Endowment online journal and the author of the recently published and highly recommended Egypt under El-Sisi (I.B.Tauris) which examines social, economic and political developments since the coup of 2013. You can find Maged’s most recent AD podcast here. 2024 looked like the year of salvation for the Sisi regime. After entangling the country in a dramatic debt crisis salvation came from regime allies and international financial institutions. Salvation arrived in the form of a massive and immediate cash transfusion from the UAE, worth US$ 35 billion for the Ras El Hekma development deal, a prime piece of real estate on Egypt's Mediterranean coast. The details remain murky but its effects are crystal clear. Once the deal was announced the IMF agreed to increase its loan to the country from US$ 3 billion to US$ 8 billion. This was followed by another funding package from the EU to the tune of US$ 8.1 billion and the World Bank chimed in with an additional US$ 6 billion of financing over the next three years bringing the tally to over US$ 50 billion of international support. This, however, does not seem to be sufficient to stave off the debt crisis whose effects are still being felt and are likely to continue for the foreseeable future. On the contrary, the massive influx of capital seems to have had the opposite of the intended effect, namely it has encouraged the regime to avoid desperately needed reform and to continue down the path of its brutal model of militarised state capitalism. The Egyptian pound breached 50 pounds to the dollar for the first time since March, Egypt’s Central Bank said earlier this month The most obvious symptom of the continuation of the crisis is the mounting pressure on the Egyptian pound which has continued to weaken to reach a record historical low of more than 50 EGP to the dollar. This weakening is closely coupled to the inability of the regime to generate enough sources of hard currency to plug the financing gap and to finance its foreign debt payments which reached US$ 23.8 billion in the first 9 month of 2024. Thus Sisi has been pushed to rely on ‘hot money ‘ in an attempt to meet these demands. For example after the devaluation of the pound in March dropping from 31.5 EGP to 49.5 EGP to the dollar and following the announcement of the UAE rescue package hot money flowed into the country reaching a record US$34 billion by April. However this is a double edged sword, as the regime finds itself captive to hot money investors seeking quick profits from high interest short-term loans. Indeed, it now has no choice but to increase its interest rates to avoid a mass exodus of such investors which, were it to happen, could lead to financial collapse. Hot money has pushed interest on Egyptian debt to reach the exuberant rate of 31-35%, adding to the ballooning debt burden and leaving the regime in an increasingly weakened position in relation to its debtors with little choice but to keep interest rates exceedingly high. A cycle of increased debt dependence has been established that is now very difficult to break. The situation is compounded by regional instability while lack of investments is applying additional hard currency pressure on government revenues. Firstly there is the reduced income from the Suez Canal, which saw its revenues drop by almost a quarter in 2023-24 from US$ 9.4 billion to US$ 7.2 billion. A more profound event is the dramatic drop in gas exports, with the level of gas production reaching a six year low, as Egypt flipped from a gas exporter - with total revenues of US$8.4 billion in 2022 - to requiring US$ 2 billion over the summer months to meet its domestic demand in the midst of rolling blackouts. The reasons for the drop in production seem to revolve around lack of new investments, which comes down to lack of funds by the government to meet its obligations and develop the energy sector, with debt to energy companies estimated at US$ 5.9 billion by the end of April. The situation is worsened by what appears to be the regime’s decision to carry on with its policy of militarised state capitalism, the root cause of the current crisis. There are multiples signs of this devastating trend. For example, in August the head of the Sovereign Fund of Egypt (SFE), Ayman Soliman, resigned from his position after 5 years in the post. The apparent reason for his resignation was his inability to make progress in the sale of military owned companies, in spite of them being formally placed in SFE hands in February 2020. The failure of the SFE boils down to obstruction from the military which has blocked the sale of military owned companies in spite of numerous promises by the government to do so, including calls made by Sisi himself. There are also signs that the military's stranglehold over the economy and the state is deepening, making the prospect of reform even more remote. The clearest example of this is the case of the “Future of Egypt” agency, which is part of the Egyptian Air Force. Future of Egypt has now supplanted the Ministry of Supply as the sole responsible agency for the importing of wheat by direct order. Considering that Egypt is the largest wheat importer in the world, it is a policy that is a clear extension of military power over a vital economic activity. It is also one that opens up the way for mass graft since competitive bidding has been replaced with purchasing by direct order, not to mention the loss of years of experience accumulated by the Ministry of Supply in dealing in international markets. The regime answer to the continued crisis is to remain locked into its model of militarised state capitalism and yoked to its ultra-nationalist ideological foundations, displaying both an open contempt for the poor and its firm believe in the moral superiority of the military establishment. True to form, the regime continued in 2024 the policy of moving the burden of the crisis and its foolish policies onto the shoulders of the poor and the middle class. This was done through brutal austerity which saw the price of subsidised bread increase by 300% from June while the price of fuel increased by three times in the year. This is happening as inflation remains high at 25.5% in November, just a slight drop from where it was in January at 29.8%. Hence, even though the regime has so far avoided a financial collapse and a debt default, the picture remains gloomy with the Egyptian economy heavily susceptible to the ups and downs of geopolitics and international financial markets. If there is anything to be learned from the events in Syria, it is that changes in geopolitics can have a massive impact on autocratic regimes heavily dependent on external support. In this respect the similarities between Sisi and Bashar al-Assad are eerie and perhaps too close for comfort for the Egyptian dictator.