The world is going through a major economic crisis resulting from the repercussions of the Russian-Ukrainian war and the pandemic of the Corona virus and its variants, but its impact on developing countries was more severe, especially those that suffer from a large deficit in the volume of funds in order to bridge the deficit in the financial budget and pay debt installments, such as Egypt .
Some economic reports indicate that Egypt may pay exorbitant sums to finance an expected deficit of $30 billion in the budget for the fiscal year that begins next July, in addition to commitments towards external debt ranging between $25 billion and $30 billion over the next three years.
The repercussions of the economic crisis on the countries of the world vary, according to experts, analysts, and economic institutions, according to the solidity of the economy of that country in the face of violent shocks, and in the case of Egypt, which suffers from economic deterioration, officials rely on the “flexibility” of the economy to absorb negative effects and cross the bottleneck.
Factors of the crisis.. local or global
The Egyptian government always denies that the internal economic situation is responsible for the crisis that the country is going through, and Prime Minister Mostafa Madbouly attributed it to the global crisis, saying, "We are talking about the worst crisis that the entire world has experienced since the 1920s, that is, since nearly 100 years, and the whole world describes it as such.
Madbouly considered, during a press conference held specifically to discuss the current state of the economy, in mid-May, that the discussions revolving around the current situation in Egypt, which he says is a local crisis and not the product of a global problem, "is not true."
Finance Minister Mohamed Maait also ruled out, in press statements, that his country's economy would be subject to stagnation, and said that it has become more coherent in the face of global challenges, and has the ability to deal positively and flexible with internal and external shocks, explaining that economic reform has made the state more able to confront economic crises. Globalism.
Successive jumps in budget allocations to pay off debt installments and interests within 5 years pic.twitter.com/wIqXP5nQ73
- Al Jazeera Egypt (@AJA_Egypt) May 10, 2022
Fragile or resilient economy?
On the other hand, the consultant of governance systems and institutional development, Dr. Samir Al-Wasimi believes that the Egyptian government bears the responsibility for the deterioration of economic conditions because it was unable to make the economy solid enough to withstand strong global shocks by relying
increasingly on loans and financial aid and
using them in huge infrastructure projects that do not generate real returns. This made the local economy fragile.
International Monetary Fund Director Kristalina Georgieva describes the Egyptian economic situation as "deteriorating" and says that a large number of citizens are exposed to difficult living conditions, pointing to Egypt's need for financial stability and continuing reforms, in addition to the need for an IMF program that protects vulnerable groups.
Cairo has already requested a new program from the “International Monetary” for a period of 3 years, and did not reveal the expected value of the new loan from the Fund, but it is likely not to be large, according to Central Bank Governor Tarek Amer, especially since Egypt has obtained 20 billion dollars in financing since 2016. .
Egypt's net external debt jumps 8.1 billion dollars in the last quarter of 2021 to 145.5 billion dollars, according to what was published by "Reuters" pic.twitter.com/5SqHwl2sIS
- Al Jazeera Egypt (@AJA_Egypt) May 29, 2022
Bloomberg warned in a report entitled "Crisis of Emerging Economies: Hunger and Power Outages Are Just Beginnings" of the accumulation of a barrage of shocks that emerging markets have not faced since the 1990s, as a torrent of crises led to the sinking of economies and the overthrow of governments.
This US agency explained that the turmoil caused by the increase in food and energy prices is hitting countries, including Egypt, deeply, while the dangers threaten to turn into a broader debt disaster, noting that the Egyptian state is among the list of those at risk because of its problems in the balance of payments.
Before the Russian-Ukrainian war, Cairo imported 42 percent of its grain needs from Russia and Ukraine, and 31 percent of the number of tourists coming to Egypt came from these two countries as well, according to the prime minister.
And between considering it a local or global crisis, a fragile or resilient economy and a negative or positive future outlook, comes the role of neutral numbers that show the real situation of the Egyptian economy and what it has and what it is, some of which are unprecedented in the country’s history negatively, and some of them exceed expectations positively.
Figures promoted by the Egyptian government
6.2% expected economic growth during the fiscal year 2021-2022.
Achieving an initial surplus of 91 billion pounds (4.9 billion dollars), which represents 1.3% of the gross domestic product.
Public debt is 85% of GDP.
Reducing the overall GDP deficit to 6.2%.
7.9 trillion Egyptian pounds ($424 billion) in gross domestic product.
45.2 billion dollars, the volume of exports in 2021.
7.4% unemployment rate.
Transient or stable crisis?
The Egyptian authorities admit that they are going through a severe economic crisis, but it is "transient and unstable." Billions of dollars annually for 4 years.
Al-Sisi previously expressed his frustration with the performance of his government, and stated - when opening a new chemical factory on December 28 last - that the state is not good at managing the economy, and said, "We need the private sector, we have proven incompetent in management." According to the British magazine The Economist.
The burden of internal and external debts devours the entire state’s revenues, reaching 110% of the total public revenues, i.e. about one trillion and 655.7 billion pounds (89 billion dollars) (690.2 billion pounds in interest and 965.5 billion in debt installments), while the total expected revenues are 1.5 trillion and 517.9 billion pounds (81.6 billion dollars), according to the financial statement of the state's general budget for the fiscal year (2022-2023).
The gap between the external debt and the cash reserve in Egypt increased by about 4 times in 12 years, according to Bloomberg, as the external debt jumped to 145.5 billion dollars, and the cash reserves fell to about 37.1 billion, and the cash reserve in 2011 was about 36 billion dollars and the external debt 34.9 billion.
As a result of the large commitments, 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 dollars this year, compared to 63 billion last year through its issuance of bonds, according to expectations of Standard & Poor's (S&P). Finance.
In order to face the impact of the exit of 20 billion dollars of “hot” money, the escalation of inflation rates and the decline in the monetary reserve, the Central Bank of Egypt resorted to a series of sudden measures such as devaluing the pound against the dollar by about 19%, to its lowest level in 5 years to about 18.6 pounds, and increasing interest rates. A total of 3% in two consecutive meetings.
Next year's budget is burdened with debts and taxes
The next fiscal year 2022/2023 budget reveals many unprecedented challenges, such as:
Expansion of tax collection.
Increasing the value of funds by 43% from last year to reach 1.52 trillion Egyptian pounds (81.6 billion dollars) in order to bridge the deficit in the financial budget and pay debt installments, according to the Egyptian Ministry of Finance.
EGP 690.1 billion ($37.5 billion) is the cost of debt servicing, or 33.3% of total expenses (the largest item of expenses), an increase of 19%, or equivalent to half of the revenues.
1.2 trillion pounds, equivalent to about 65.5 billion dollars, expected tax revenues, an increase of about 19%, or 77% of the total revenues.
965.5 billion pounds ($52 billion) in principal debt installments.
Egypt's credit rating raises concern
The negative economic numbers have reflected on Egypt’s credit rating, and it is now threatened for the first time since 2013, to downgrade it after Moody’s changed the future outlook to negative instead of stable, although it fixed its rating at “B2” (B2). A lower rating means a risk), warning that a further decline in the central bank's foreign reserves could prompt it to downgrade the country's rating for the first time since March 2013.Keywords: