Egypt faces political and economic trials
22 February 2024
Commentary
John Bambridge
Analysis editor
Egypt finds itself both at the centre of a regional conflagration of conflict and in an increasingly difficult fiscal position – challenges that are requiring Cairo to think carefully about its every move.
Since October, the war in Gaza has compounded the perils on Egypt’s borders, with the protracted civil strife in Libya to the west and the fierce fighting in the Sudanese civil war to the south.
The latest conflict has robbed Egypt of its last remaining quiescent land border and triggered strikes by the Houthis on shipping in the Red Sea that have in turn dramatically impacted the revenue from the passage of traffic through the Suez Canal. It has also pushed the Egyptian government into a complex geopolitical standoff with Israel.
Domestically, President Abdel Fattah El Sisi’s administration is wrestling with a deepening fiscal crisis driven by a decade of extravagant spending on infrastructure projects across the country. Public debt now stands at around 90% of GDP, and debt servicing has been increasingly eating into the budget in recent years, even as revenues have wavered amid repeated knocks to global trade and travel.
High inflation due to the rising cost of imports has led to chronic weakness in the Egyptian pound that has it bound for a further devaluation – to join three other devaluations in the past three years, alongside El Sisi’s seminal devaluation back in 2016. A further correction in the exchange rate by the central bank is also one of the terms that the IMF is pushing for in the final negotiations over the reforms expected in exchange for fresh financing.
The financial package being worked out with the IMF nevertheless represents a lifeline for Cairo, which otherwise could be struggling to pay its bills as $8bn-worth of loans come due over the next four years, on top of the country’s other burgeoning capital and operational costs.
Beyond the border, the situation in Gaza is threatening to spill over onto Egyptian soil – a development that would metastasise a humanitarian catastrophe that is currently only partly Cairo’s problem into one that is wholly its problem. Israeli politicians have repeatedly voiced a desire to forcibly displace the Gazan population into Egypt, and several leaked reports have revealed their attempts to convince Cairo to acquiesce to the same – an unappealing and politically precarious prospect for El Sisi.
El Sisi’s claim to political legitimacy, beyond Egypt’s questionable electoral process, has been built on the promise of security, great works and economic progress. Under the present circumstances, convincingly delivering that trifecta looks set to be an increasingly tricky prospect.
MEED’s March 2024 special report on Egypt also includes:
> Cairo beset by regional geopolitical storm
> More pain for more gain for Egypt
> Egypt oil and gas project activity declines
> Familiar realities threaten Egypt’s energy hub ambitions
> Egypt’s desalination projects inch forward
> Infrastructure carries Egypt construction
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