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Can Egypt overcome economic struggles post-Sisi’s re-election?
Egypt grapples with a multifaceted economic crisis, marked by an overvalued currency, soaring inflation, and unprecedented levels of debt.
An Egyptian worker drives a construction truck on the road at the New Administrative Capital (NAC) in the desert east of Cairo, Egypt December 8, 2023. REUTERS/Amr Abdallah Dalsh/File Photo
Amid a sustained economic decline, Egypt confronts critical decisions following President Abdel Fattah el-Sisi’s recent electoral victory.
The war in Gaza has aggravated an already bad situation by severely hurting tourism revenues and disrupting payments of a large proportion of the country’s foreign exchange earnings that depend on ships passing through it. The government waited until after President el-Sisi’s re-election to take the necessary economic measures.
The Arguments
Experts say that a large currency devaluation and interest rate increase will help stabilize the economy and attract foreign investment. But such measures would also create higher inflation and even social instability.
The International Monetary Fund is ready to offer a $3 billion financial package, but only if the government takes steps like allowing for a flexible exchange rate and selling off state assets. Selling off its state-owned assets would allow it to gather much needed cash, but detractors believe that this is where the rich get even better deals.
The recent conflict in Gaza has further complicated Egypt’s economic landscape, affecting crucial revenue streams from tourism and the Suez Canal. These challenges pose threats to currency flows, necessitating strategic responses to safeguard economic stability.
Clearing port backlogs, settling arrears, and meeting import demands require financial resources. Egypt, traditionally reliant on Gulf allies, has sought support from multilateral finance organisations and diverse states like Japan, China, India, and the UAE. State asset sales, a potential funding source, are under scrutiny.
The Facts
The Egyptian pound has taken a terrible hit on the black market. It was trading at 29 per dollar this time last year, but is now over 50.
Uncertainty about the future of the currency has seen Egyptians remittances from abroad fall by nearly $ 10 billion.
Egypt’s public foreign debt surged by $8.4 billion in six months, reaching $189.7 billion. Repayments, which total an average of ($42. 26 bn), are due in 2024.
IMF estimates indicate a financing gap of $17 billion over 46 months, emphasizing economic challenges.
The Gaza crisis has wreaked havoc on the tourism and Suez Canal industries which are the vital sources of revenue for Egypt.
The question remains: will Egypt choose the difficult choices required for economic recovery, or will it continue to gloss over them and risk further decline?
