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.
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