Egyptians in dire straits
When the state-controlled media in Egypt launched a campaign late last year touting the health benefits of inexpensive chicken claws as a source of protein, Egyptians knew they were in for a tough year in 2023. Meat and poultry had already become too expensive for many to afford. At the time, however, people could hardly have imagined just how hard things would get. Since the beginning of January 2023, however, when the Egyptian currency was devalued by a further 13 percent against the dollar, one topic has preoccupied people in Cairo: price increases.
Hassan Ahmad (not his real name) works for a delivery service in Cairo. He is at the end of his rope. On Facebook, he saw a video of a father of several children who jumped off a balcony because he could no longer feed his family, Hassan recounts, still visibly shocked. Many families are forced to subsist on one meal a day. At every market he frequents, Hassan sees people arguing about prices.
And he is not an isolated case. Hassan is among the 60 percent of Egyptians who, according to the World Bank, are either living today below the poverty line or are about to end up there. In absolute figures, this accounts for 60 million people.
Lebanon's dire economic straits have often made headlines in recent months, as well as the empty supermarket shelves in Tunisia. But now the most populous Arab country, Egypt, with its more than 100 million inhabitants, is likewise facing enormous economic and social challenges.
Further depreciation of the Egyptian pound expected
Egypt's currency has lost half its value since last March. Last year, people already had to cope with an inflation rate of over 21 percent. Now, some economists have forecast a rate of up to 25 percent for the first quarter of this year. And economic experts and investment bankers expect a further devaluation of the Egyptian pound before it settles at its true market value. Deutsche Bank AG predicts that the currency will depreciate by another ten percent.
The rise in food prices is particularly dramatic. On average, the price of food products has gone up by more than a third over the past year, with wages remaining low for the majority of Egyptians. The reason for the devaluation of the pound is that the Egyptian state is running out of U.S. dollars. According to the Egyptian Central Bank debt plus interest totalled $155 billion in the third quarter of 2022.
Relief was anticipated in the form of a loan from the International Monetary Fund (IMF) to be spread over 46 months, but the first instalment of more than $300 million was consumed almost entirely by interest on the state debt.
The negative trade balance is only making matters worse. According to the daily paper Al-Shorouk, goods worth between $6 and $7.7 billion are currently being held up in Egyptian ports. Since there are not enough U.S. dollars in the banking system, the goods cannot be released. In this case, the devaluation of the Egyptian pound has provided some relief.
That is one reason Prime Minister Mostafa Madbuly declared an end to the port crisis, at least for the moment, in a press conference this week. He stated that the release of imported goods and production materials from ports has returned to pre-February 2022 levels, with factories back to operating at full capacity.
Former military chief and current President Abdul Fattah al-Sisi has repeatedly refused to accept any blame in recent weeks, citing the Ukraine war and the COVID-19 pandemic as the causes behind the country's economic plight. He is calling on his people not to panic. "Don't talk nonsense," he exhorted his compatriots in a speech in mid-January. Instead, Egyptians should listen only to himself and his ministers, he continued.
Sisi cannot ignore the Egyptian military’s economic role forever@SayighYezid writes for @FT https://t.co/mMHRgKTLBQ
— Malcolm H. Kerr Carnegie Middle East Center (@CarnegieMEC) January 23, 2023
Criticism of Sisi is growing more insistent
And yet the policies pursued by the head of state are increasingly coming under fire in the country, even in parliament, which many consider under his thumb. "We have been warning of this for years. We told you that if things continue like this, we will end up with our backs against the wall, and that is exactly what is happening now," said Deputy Speaker Maha Abdel Nasser in a speech before parliament.
She disagrees with some of the statements made by government representatives who are trying to gloss over the situation. "You are basically saying that people are liars. As if they're just imagining that they can no longer buy enough food and that the dollar has skyrocketed," she said.
While the government attributes the crisis to external factors such as the Ukraine war, many economists concur that this crisis is home-made. Expensive prestige projects such as the still-unfinished construction of a new capital have seen the country's dollar reserves dwindle away to nothing.
Even when aid does come from abroad, it is meanwhile tied to tougher conditions. The IMF, for example, is calling for "critical structural changes", a sensitive topic in Egypt. Before it provides any further loans, the Monetary Fund is demanding not only more flexibility in the Egyptian pound but also, for the first time, that the military stop meddling in the economy.
The army has in fact become one of the country's largest entrepreneurs in recent years, operating in numerous economic sectors and supplanting private investors. It will not be easy for Sisi to meet this IMF demand, as it targets the very institution that constitutes his major power base.
Will the Gulf States step in?
All that remains for Egypt is the hope that the rich Gulf States will offer assistance out of fear that instability in the most populous Arab country could also endanger their own autocratic political systems. They have at least confirmed that they will be extending the term for their $7.7 billion in deposits in the Central Bank of Egypt. But an influx of fresh money from the Gulf is anything but guaranteed. The states prefer to put their money into buying up profitable companies in Egypt rather than dumping it into the black hole of the Egyptian state.
A public debate is currently being waged in the Gulf about whether it is even wise to supply Egypt with more money. Osama al-Shaheen, a Kuwaiti parliamentarian, has for example warned his government against blindly continuing to invest in the Egyptian economy, instead advising the withdrawal of Kuwaiti public funds that have already been deposited there.
Saudi Finance Minister Mohammed al-Jadaan for his part recently declared at the World Economic Forum in Davos that the days when the kingdom provided direct financial grants internationally with no strings attached are over.
"We are working with multilateral institutions to actually say we need to see reforms," he remarked in Davos. This message was aimed at Egypt, where the Saudis had deposited $5 billion in the Central Bank last year without imposing any conditions in order to top up the country's dwindling supply of dollars.
For those in power in Egypt, this about-face constitutes a difficult balancing act. On the domestic front, they must play down the problems and reassure the populace, while in their dealings with the outside world, in particular the Gulf States but also international institutions, they have to emphasise instead the dramatic nature of the crisis – in the hope that the others will recognise that Egypt is simply too big to be allowed to fail.
© Qantara.de 2023
Translated from the German by Jennifer Taylor