Is the Egyptian economy going through a crisis worse than the repercussions of floating the Egyptian pound in 2016?

CAIRO

- Egyptians live in an economic atmosphere similar to the one that accompanied the flotation of the pound at the end of 2016, and the government described it at the time as a "bitter medicine" in order to recover from the effects of wrong economic policies over the past decades. With it, the value of Egyptians' savings, prices rose strongly, and inflation jumped to record levels.

At a time when the Egyptians were waiting for the end of the economic reform journey and the International Monetary Fund program after consuming the “bitter medicine” willingly and unwillingly, and reaping the fruits of patience and perseverance, they found themselves in front of a new economic crisis, but its features appear darker this time, and its impact is more severe after the Egyptian government’s decision A few days ago, he devalued the pound by more than 17%, raised interest rates by 1%, and resorted to the International Monetary Fund again, according to observers.

The government denies that resorting to the IMF will impose any new burdens on citizens, as Prime Minister Mostafa Madbouly said at the end of last March, "The citizen will not bear any financial burdens from the new cooperation with the IMF," but he did not rule out the occurrence of the worst scenario, continuing: "We lay out the worst-case scenario for any crisis, especially the crisis of the Russian-Ukrainian war."

The worst in recent decades

Observers and experts in the field of economics and governance - in their talk to Al Jazeera Net - believe that this time the crisis is different from its predecessors, as it is complex and multiplying;

Because it is internal and external, and it will be applied firmly to the fragile Egyptian economy, which is suffering from the effects of the Corona pandemic and the repercussions of the Russian-Ukrainian war, and it is believed to be the worst in decades.

These experts pointed out that the recent Egyptian government measures are only the beginning of a long series of economic measures that will have harsh results, such as an inflationary wave, an increase in interest rates again, and the continuation of rising prices in addition to what will be required by the demands of the International Monetary Fund.

There is no date on the horizon for the end of the crisis, which President Abdel Fattah El-Sisi indicated that the current crisis may be prolonged. He said last Tuesday - addressing the governors via video conference technology - "Oh group, the current crisis may last a little (a little), this means that Its effects will be with us, and we must be able to see that and deal with it and not just adjust prices now, we must have a vision for the stability of the situation in the future because it is a burden on people.”

The journalist interested in economic and social rights, Ramadan Al-Senussi, believes that the central bank, in one way or another, repeated the painful scenario of 2016, when it announced the floating of the pound, as a primary item on the agenda of the "economic reform" program.

The current economic crisis, according to an article by Senussi, has forced the Egyptian government to go in two parallel directions.

The first relates to reviewing the subsidy system and expanding the tax base, and the second applies the new slogan raised by Finance Minister Mohamed Maait “maximizing the benefit of state assets” by expanding the sale of state assets.

The new prices for gasoline of all kinds after increasing 25 piasters this morning pic.twitter.com/tyRbv7Cmgt

— Al Jazeera Egypt (@AJA_Egypt) April 15, 2022

The predicament and the exit

It is a truly complex economic crisis, according to Dr. Samir Al-Wasimi, a consultant on governance and institutional development systems, noting that it is “a crisis of management and public policies in the first place. What you need is clarity and creativity."

Al-Wasimi, an associate professor in strategic management, added, in his speech to Al-Jazeera Net, that Egypt needs creativity in solutions in light of the internal and external predicament it is experiencing, stressing that the deviation is more in the direction of the rentier economy or collection projects that are based on more taxation on the people. It will not solve the crisis.

He believes that the authority in Egypt should have moved more towards a productive economy and should have stopped burdening the country with more debts that eat most of its national income and negatively affect the country's economic independence.

In addition to the above, Al-Wasimi believes that politics and the economy are completely linked to each other;

Therefore, resolving the complex and completely closed political situation in Egypt would create a supportive environment for the development of the economic situation, according to new policies that must be in line with the empowerment of the private investment sector and bringing in new investments and not intimidating investors as happened over the past years.

The debt instruments market witnessed the exit of more than 15 billion dollars, according to many economic reports, in addition to a sharp decline in net foreign assets last February, for the fifth month in a row, as it decreased by 60 billion pounds, turning to negative 50.3 billion pounds, (A dollar equals 18.40 pounds), as a result of the massive exodus of foreign investors from government debt instruments in Egypt.

Although Saudi Arabia deposited 5 billion dollars with the Central Bank of Egypt, bringing the total Saudi deposits to 10.3 billion dollars, it is not enough, according to press statements by Tariq Metwally, former vice president of BLOM Bank Egypt, who believes that aid should not be less than 20 billion dollars, but May ease the pressure of demand on the dollar.

The economy between the jaws of borrowing and selling

The Director of the International Center for Development Studies, researcher in political economy, Mostafa Youssef, describes the current problem facing the Egyptian economy as the most dangerous because of the unprecedented rise in the volume of debts and their wastage in economic and social useless projects and in paying their interests. Poverty rates and the erosion of the middle class.

He added - to Al-Jazeera Net - that after the first flotation in November 2016 and obtaining a loan of $12 billion from the IMF, borrowing became "uncontrollable and wide," and spending on non-productive projects known to all increased, along with a reluctance to Foreign companies and investors refrain from direct investment in Egypt due to the absence of transparency, democracy and the rule of law, as they rank very low in these indicators, as he put it.

Youssef expressed his fear that Egypt would face the specter of not repaying the value of the loans when their deadlines come.

Because the "great cost of corruption and crony capitalism" that dominates the joints of the economy has literally destroyed the national private sector and pushed tens of millions of Egyptians from the middle class to the poor and below the poverty line, he said.

He stressed that "selling profitable assets to Emirati and Saudi buyers is an attempt to buy some time before slipping into the abyss, and that the continuation of the Russian-Ukrainian war will not bear the repercussions of the fragile and dependent economies, such as the Egyptian economy, which is being hijacked by the crisis internally and externally," as he put it.

The UAE owns 18% of the largest bank listed on the Egyptian Stock Exchange “CIB”, according to a “Bloomberg” report pic.twitter.com/oPXqzGmR2X

— Al Jazeera Egypt (@AJA_Egypt) March 23, 2022

The largest issuer of sovereign debt

Egypt will become the largest issuer of sovereign debt among emerging markets in Europe, the Middle East and Africa, with issuances amounting to $73 billion this year, compared to $63 billion last year through its bond issuance, according to forecasts by Standard & Poor's (S&P).

The Federal Reserve (the US Central Bank) for the first time since 2018, raised the interest on the dollar last month by a quarter of a percentage point to become 0.5%, as part of its plan to increase it to 2% at the end of this year and then to 2.75% in 2023, and the Central Bank of Egypt followed it by raising interest rates on the dollar. The pound is 1%, in an upcoming series of increases as well.

Annual inflation for the country’s total jumped last March to 12.1%, compared to 4.8% for the same month last year, and consumer prices for the country’s total increased last March on a monthly basis by 2.4%, according to the Central Agency for Public Mobilization and Statistics of Egypt.

Inflation rates are expected to reach their peak next summer, and interest rates will continue to rise by between 1% and 3% until the end of this year, according to a research note published by Mona Badir, chief economist at Prime Securities.

The head of Middle East research for private banking services at Credit Suisse Group, based in Dubai, Fahd Iqbal, sums up the crisis that the Egyptian economy is going through by saying, “The central bank’s move indicates that conditions in Egypt are worse than we expected, and we cannot rule out the danger of Further devaluation at a later stage."