Without early presidential elections, and a major and fundamental reset in the regime’s brutal approach, Egypt will continue hurtling towards catastrophe
In 2019, I wrote that, given its current course, Egypt would soon be facing bankruptcy and a failure of the state’s ability to provide basic services for its citizens.
This view was challenged by some who believed that Egypt was undergoing significant development. Foreign hedge funds continued to invest in Egyptian government instruments and the IMF continued to offer essentially unconditional support.
Egypt is borrowing just to survive and the only way to meet those debt obligations is to borrow more
But in the past three months, the Egyptian pound has taken a beating, foreign currency is unavailable for most importers and the cost of living is soaring. One estimate put inflation at an unsustainable 88 percent.
Egypt’s total debt has risen by 93 percent in just five years and debt service is expected to increase by 62 percent from the financial year 2020/2021 to 2023/2024. In the 2022/2023 budget, debt accounted for nearly 50 percent of expenditure.
In other words, Egypt is borrowing just to survive and the only way to meet those debt obligations is to borrow more.
Even within the limited constraints within which the Egyptian parliament operates, it is clear that the jig is up. According to one MP’s comments, “[T]he government does not have a vision to stop borrowing, or to limit the use of borrowing to close the deficit and increase resources.”
What about the fundamentals of the economy? The answer is that those fundamentals have been systematically destroyed over the past 10 years since the military takeover of the country.
Egypt’s sources of foreign currency are limited. Traditionally, the two main sources have been Suez Canal revenue and foreign tourism. Both have been hard hit, first by instability, then by the Covid-19 pandemic and now the Ukraine war.
In the meantime, the government squandered massive opportunities to develop, modernise and grow the economy.
Instead of growing the private sector – with the potential attendant effects on real GDP – the government chose to consolidate all economic activity in the hands of the military. Today the military operates in every sector of Egyptian economic life, including the media, entertainment, food
The result? Egypt isn’t open for business. In fact, the private sector is on life support, if not already effectively dead.
In the meantime, the military, under the direct and personal guidance of President Abdel Fattah el-Sisi has focused on mega projects that have no impact on economic growth.
The new “Administrative Capital City” rising in the desert has siphoned $55bn from the economy. A needless expansion of the Suez Canal siphoned another $9bn with hardly an increase in revenues.
How we reached that point is not difficult to work out. First, the regime followed a path that has nothing to do with economic knowledge, both on the monetary and fiscal side. Second, the huge support from the IMF and other international powers hailing him and his economic measures.
Third, an estimated $45bn went into weapons purchasing, without any obvious geopolitical risk or need. Between 2015-2019, Egypt – a heavily indebted country with significant poverty – became the third-largest arms importer in the world. Conversely, spending on essential sectors such as health and education is consistently below even constitutionally guaranteed minimums.
Underlying all of these decisions was one single vision that Sisi has had from the beginning: that there is an abundance of money both domestically and regionally from which Egypt can draw. This has been coupled with a brutal and unprecedented repression that is ongoing and unrelenting.
And so government policy has centred on finding ways of draining the population’s wealth through public bond offerings that effectively give negative returns when accounting for currency devaluation, or through taxation.
The most recent tax levied by the government targets marriage. For most Egyptians, it was assumed this was a joke, until announced in person by Sisi. Sisi’s view of Gulf money – “they have money like rice” – became well known early on.
Lastly, Sisi despises planning. He famously stated that if the government had undertaken feasibility studies, 75-80 percent of government projects would not have been approved. The irony is obviously lost on him.
A total disconnect
Those were the clear steps to disaster that did not require hindsight. So, how could the government continue to operate in this way and yet maintain its international standing? The answer is sad but obvious: the government bought off the international community through a series of manoeuvres.
Arms purchases, for example, were aimed at buying “the goodwill of the seller nations and at the same time discouraging US pressure on issues such as his horrific human rights and anti-democracy record”, according to Yezid Sayigh, a senior fellow at the Malcolm H Kerr Carnegie Middle East Centre.
Construction of the finance district of Egypt’s New Administrative Capital City megaproject, 45km east of Cairo, 3 August 2021. (AFP)
High-interest rates on debt leveraged the short-term needs of investment firms. And donors, such as the Gulf countries, saw the success of the military regime as essential to their own projects in the region.
And so here we are. Hundreds of billions of dollars wasted. The private sector demolished. The state treasury debt-stricken. And the cost of living soaring. There is a near-total disconnect between popular sentiment and official policy.
Almost 70 percent of Egyptians believe the government is doing “too little to meet people’s need for an acceptable standard of living”, and, despite the extremely repressive practices of the regime, half the population could not get themselves to agree with the notion that mass street protests against the government are a bad thing.
Beyond the numbers, however, the mood of Egyptians on the street has palpably changed.
Despair abounds. Fear is palpable. The sense that the country is collapsing before the eyes of Egyptians is pervasive. And there is no hint at all that Sisi or the government are reassessing this path to destruction.
Today’s anger is of a different feel than at any point in Egypt’s recent past. This does not necessarily mean there will be mass mobilisation, but popular anger will reach a point that will spill into the streets and which will be met with brutal, deadly repression. But without any other recourse, the situation will become unpredictable.
The sense that the country is collapsing before the eyes of Egyptians is pervasive. And there is no hint at all that Sisi is reassessing this path to destruction
Egypt’s international backers will likely continue to try to offer lifelines bound by a sunken-cost fallacy and the delusional thinking that they can push the regime towards “reform”. But I now believe that Egypt is facing disaster.
The government may be able to delay the collapse, but not prevent it, and it should be painfully obvious to all that it is the government itself and the vision of its leader that has led Egypt to this point of disaster.
The only path forward for Egypt is one that does not involve Sisi or the military as the executive authority and, without that change, Egypt is heading towards an unknown and dark future.
It has been said that Egypt is too big to fail, but it may well be that it is too big to save. In the absence of early presidential elections, coupled with a major and fundamental reset in the repressive and brutal approach of the regime, we will continue to hurtle towards disaster.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye
Disclaimer: Despair, fear, repression: Sisi is driving Egypt toward disaster by Yehia Hamed - Views expressed by writers in this section are their own and do not necessarily reflect Latheefarook.com point-of-view