Why has the train of inflation and high prices in Egypt become without brakes?

The password in Egypt's economic problems is always the dollar, which is expected to rise to 100 pounds before mid-year (Getty)

In Egypt, people talk about nothing but inflation and high prices.

They represent a train running without brakes.

Even economic experts found themselves unable to solve the dilemmas and puzzles of the economic situation, which is getting worse day by day.

Everyone thinks the solutions are simple, but once implemented, countless problems arise.

Whenever a garment is sewn on one side, it opens on the other.

The password is always the dollar, as many expect that it will not reach 100 pounds until the middle of the year.

Although the state pins its economic failures on one external peg after another: (the Covid-19 crisis, then the Russian-Ukrainian war, then the Gaza war), the biggest reason behind the crisis is the huge external debt ($190 billion after adding $24.6 billion in interest for the year 2024). And the imbalanced trade balance, which placed Egypt at a moment in time similar in form and content to the state of Khedive Ismail (1863-1879), whose foreign debt overthrew all its achievements.

All the solutions offered by the state led to further deterioration.

Raising the interest rate - which was aimed at attracting money and preventing speculation in the dollar, gold, and real estate - led to an unprecedented deficit in domestic investment, and to more speculation.

Attempts to collect the dollar from local markets and from Egyptians abroad, by raising interest rates on it to 7%, also failed to achieve their goals, and even incurred new financial burdens, similar to those burdens they incurred due to the offering of certificates for saving the pound with a high return that arrived in mid-January. To 27%.

Control of the private and public sectors by sovereign institutions;

Under the pretext of better management and subcontracting the work to direct orders, it did not bear fruit.

These companies were not managed efficiently, and the new owners did not pay taxes or compete in the free market, which contributed to the failure of the remaining private sector.

The currency crisis continued to worsen, inflation reached 45% (then fell to 38%), and food prices increased by 70%.

Under pressure from the International Monetary Fund, the state sought to sell the companies it owned to a strategic investor (specifically Gulf), but the attempt failed.

Because buyers want to buy cheaply.

Everyone believes that economic solutions in Egypt are simple, but once implementation begins, countless problems arise.

Whenever the garment is sewn, it bursts.

The key word is always the dollar, which is expected to rise to 100 pounds before the middle of the year

Stage of selling state bones

The stage of selling the flesh of the state ended, and thinking about selling its bones began. A project to sell Sinai lands, which represent a sensitive national security area, was proposed. Legislation No. 143 of 1981 was amended to make it easier for foreign investors to own its lands.

Before that, and for many decades, selling this land to non-Egyptians was highly prohibited, and selling it to Egyptians, individuals and companies, was surrounded by severe restrictions. As for the original inhabitants of the land, the Sinai Bedouins, they left the game with hidden nostalgia after they had tasted the two things to obtain title deeds for their hometown.

Finally, the economic trends document was issued in January of this year, talking about studying plans to securitize a percentage of dollar revenues ranging between 20-25%, in exchange for bonds offered to international investors in foreign currency.

Despite the ambiguity of these plans, they raised concerns about the fate of the Suez Canal, given its political, economic and security importance, because securitization targets fixed assets that generate income from foreign currency, and in this case Egypt has nothing that fits this description except the Suez Canal. ".

Plans to mortgage the Suez Canal in exchange for foreign currency are, according to this interpretation, a very risky operation.

Because the party to whom the channel will be mortgaged in exchange for securitization contracts will seize this asset if the debt installments and services are not met.

This is the most likely scenario in light of the successive failure and paralysis resulting from the implementation of their ill-considered visions by non-specialists who fill the sovereign institutions. Thus, the channel that was linked in the minds of Egyptians to their national independence may also become in vain.

National dialogue solutions

In light of this difficult situation, it is worth saying that the economic axis of the “National Dialogue” issued - last September, and after several meetings - a number of proposals to improve economic conditions, which included visions for confronting the deficit, determining government directions regarding private investment, and setting A facilitating investment mechanism in various fields for domestic and foreign investors, expanding the establishment of public and private free zones, and creating a platform to provide information to connect business owners and determine their needs.

There were also important proposals that address the causes of the decline in industry and agriculture, such as developing existing industrial zones, updating the industrial investment map, raising the ceilings on credit limits, reviewing export gaps after every change in the price of the dollar, and supporting contract agriculture and the fertilizer industry.

It also included proposals to develop tourism, which is the second source of foreign currency, especially with regard to the necessity of drawing a tourist map for Egypt and providing incentives for tourism investment in all its forms...etc.

President Abdel Fattah El-Sisi had previously stated more than once that the proposals issued by this “national dialogue” would be implemented without discussion, but the government, after about 5 months had passed since the issuance of those recommendations, paid little attention to them, and instead issued an orientation document. Economic, and since January 16, 2024, it has launched a dialogue around it, as if we are in a vicious circle of dialogues that has no end and is useless, and in the end it turns into “talks,” where the decision-maker’s mouthpiece regarding them says: “Issue whatever proposals you want.” "And we will do whatever we want."

The main problem of inflation, and indeed the problem of the Egyptian economy as a whole, is related to reconsidering priorities and immediately stopping projects that led to huge borrowing, such as road and transportation projects that alone consumed about two trillion pounds ($50 billion), the new capital project, the El Alamein project, and others.

It is also important to resort to a basket of currencies that make the dollar just a regular currency, take measures that stimulate exports, stop recreational imports, rationalize government spending, govern all funds and parallel accounts, and take a number of measures to restore the confidence of Egyptians abroad in their country’s economy, which makes them a source of strengthening it. .

The opinions expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera.