Two of the most powerful international rating agencies - Moody's and Standard & Poor's - and the world's most powerful investment bank, Goldman & Sachs, have issued a confidential but firm warning to the president Egyptian Abdel Fattah El-Sisi says, "Beware, Egypt may be the next victim of the world's volatile financing conditions."

In his report, published on the French website Orient XXI, writer Jean-Pierre Sereni said that high interest rates in the United States of America could lead to a massive capital outflow from Egypt - and from a large part of emerging countries - as well as a rise in the dollar. This weakens the Egyptian pound and makes it difficult to repay the Egyptian foreign debt, which is worth more than 130 billion dollars.

The writer added that the financial strategy of the Egyptian government since the 2016 agreement - which was concluded with the International Monetary Fund - aims to give generous rewards to foreign capital to attract them to the country, and thus finance the state’s general budget deficit as well as the balance of payments deficit, thus bringing the total financing needs to a number A staggering 35% of GDP, even in 2020 (that is, at the height of the COVID-19 pandemic) this figure did not reach 10% in major Western countries.

Cairo uses one of the highest interest rates in the world: between 13 and 14% annually for loans in local currency, and 7 to 8% for foreign currencies.

According to the US financial agency Bloomberg, Egyptian real interest rates (ie the nominal interest rate compared to price hikes) are the highest in the world.

High interest rates in the United States of America may lead to a massive capital outflow from Egypt (Reuters)

Unbearable debt

According to the author, this policy has paid off.

Egypt is among the few Arab countries that witnessed positive growth in 2020 (between 2 and 3%), and it resisted the epidemic that primarily affected tourism, which is the main sector in the national economy (10% of GDP), and continued to attract Foreign savers.

While half of the Arab countries witnessed a decline in their rating, except for Egypt;

In less than a year, more than $20 billion has been pumped into the purchase of government securities, the main lender.

But the negative side of this process is its repercussions on the cost of the budget, as the interest paid by the Egyptian treasury represents 45% of public revenues, or nearly 10% of GDP.

The attractiveness of Egyptian "securities" (treasury bonds and bills) lies in the gap between their wages compared to American or European papers, which hardly exceeds 0%.

If the dollar rises - as expected - Cairo will have to follow suit, and that will be impossible with the levels it has already reached.

Whereas if the Federal Reserve (the US Central Bank) - which faces a rise in inflation by more than 2% annually - raises its rates by two points, the Central Bank of Egypt will have to follow - at least - and impose an unbearable burden on public finances.

What will be left after that to support the other country's burdens, including military and security spending?

Thus, the strategy of expensive money will come to an end, and Egyptian officials will then have to face an unprecedented financial crisis.

The writer believes that the resumption of inflation does not help resolve the crisis, and reduces the margin of maneuvering of the Central Bank of Egypt, which wanted to reduce interest rates, but kept them again at their high level on September 16, 2021, and the general price index is expected to rise by 6.6% in 2021-2022 under the pressure of the general energy tariff, which increased by about 9% after the significant reduction in electricity and fuel subsidies that were decided before the summer.

Thus consumers pay for gifts to foreign speculators, and Standard & Poor's proposes reforming double deficit financing, resorting to less leverage, and favoring non-repayable foreign direct investment.

Currently, this investment represents barely 2% of the international capital inflows to Egypt.

There is a good reason for this, as the Egyptian army surrounded the economic sector and did not leave much room for the private sector, whether national or foreign, regardless of the hydrocarbons acquired by the Italian company Eni.

The writer says that the PMI that tracks the private sector has been declining for 4 months, as the generals did not forget the attempt of former President Hosni Mubarak and his son to promote entrepreneurs from the private sector with privatization and with multiple advantages, but the 2011 revolution toppled "friendly capitalism", and the army launched an attack to occupy sectors New.

At the very least, it prevented civilians from returning to leadership positions in the Egyptian economy.

Egypt earns more from its children's labor abroad than from exports (Reuters)

The pivotal role of the army

The other solution - according to the author - is to reduce the balance of the trade deficit, which reached record levels (minus $46 billion in 2019) by boosting exports.

According to Standard & Poor's, the export base is significantly weak;

It is barely 13% of GDP when services (tourism, Suez Canal, etc.) are added to products.

Currently, Egypt mainly exports cement, medicine, and handicraft products, while the savings of migrant workers sent to Egypt ($31.47 billion) have exceeded export earnings ($25 billion excluding hydrocarbons).

The writer adds that Egypt earns more from the labor of its children abroad than from exports, and to add more of the most profitable goods to this modest list, it is necessary to invest in new activities, but the exorbitant financial policy of the regime does not allow this, and Egyptian small and medium companies do not have access to to bank credit, and unable to bear the usurious interest that is imposed under the guidance of the Central Bank of Egypt, at a time when the state is investing in real estate, and is concentrating a large (unknown) part of the borrowed capital to build a ready capital east of the Nile.

As for the army, it seeks above all the profits of the national outlets it conquered thanks to the special skills of the generals and the support in all areas from the government, so there are not many players left to boost export sales.

Under these circumstances, it is difficult to see how the share of external debt can fall from 90% of GDP today to 84% in 2024, as the Egyptian government expects.

It expects strong growth (+5.5% annually) and uses a magic formula that it has presented more than once, which is "structural reforms".

In the spring, the Council of Ministers officially adopted a major structural reform program, the “National Structural Reform Program,” without specifying its exact content, which generated a feeling of frustration among IMF experts, and since then, it has not been talked about again and reforms have been limited to subsidy cuts, while The country is at risk of a serious social crisis with youth unemployment exceeding 25%.