Egypt’s economy hit by global turmoil

DUBAI, United Arab Emirates (AP) – Shops sell last season’s winter clothes in the middle of summer. Repair shops lack spare parts for devices. There is a waiting list for the purchase of a new car.

Egypt, a country of more than 103 million people, is running out of foreign exchange needed to buy essentials like grain and fuel. To keep US dollars in the country, the government has cut imports, which means fewer new cars and sundresses.

For nearly a third of Egyptians living in poverty, and millions more living in poverty, the country’s economic woes mean life is much harder than off-season shopping – they find it harder to get food on the table. A decade after deadly protests and political upheaval rocked the Middle East’s most populous nation, the economy is still teetering and has suffered fresh slumps.

Fatima, a 32-year-old cleaning lady in Cairo, says her family stopped buying red meat five months ago. Chicken has also become a luxury. She borrows money from relatives to make ends meet.

She worries about the impact of high prices on Egypt’s social fabric. Fearing reprisals, she demands to be identified by her first name only and worries that crime and theft will increase “because people don’t have enough money to support themselves”.

For decades, most Egyptians have depended on the government to keep basic necessities affordable, but that social contract has come under strain due to the aftermath of the Russian war in Ukraine. Egypt has asked for loans to pay for grain imports for government-subsidized bread. It is also struggling with rising consumer prices as the currency depreciates. The looming food insecurity of the world’s largest wheat importer, 80% of which comes from the war-torn Black Sea region, has raised concerns.

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“In terms of bread in exchange for freedom, that treaty was broken a long time ago,” said Timothy Kaldas, an economist at the Tahrir Institute for Middle East Policy.

Annual inflation climbed to 15.3% in August, compared with just over 6% in the same month last year. The Egyptian pound recently hit a record low against a strengthening US dollar, selling at 19.5 pounds to $1. That has widened trade and fiscal deficits as foreign exchange reserves needed to buy grain and fuel fell nearly 10% in March, shortly after the Russian invasion sent commodity prices soaring and investors siphoned billions of dollars out of Egypt.

Egypt has few options to plug the hole in its finances. As with previous crises, she turned to the Gulf Arab allies and the International Monetary Fund for a bailout.

A new IMF loan would boost Egypt’s dwindling foreign exchange reserves, which have fallen to $33 billion from $41 billion in February. But a new loan will add to Egypt’s mounting external debt, which rose to $158 billion in March from $37 billion in 2010 – before the Arab Spring uprisings – according to the Central Bank of Egypt.

Leaders blame the challenges on the coronavirus pandemic, which has hurt the vital tourism industry, and price shocks triggered by the war in Ukraine. They have also blamed revolutionaries and those who may have supported the Muslim Brotherhood.

“Why don’t you want to pay for what you did in 2011 and 2013?” President Abdel Fattah el-Sissi said in a televised address this month. “What you did – didn’t that have a negative impact on the economy?”

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He was referring to protests that toppled Egypt’s longtime president, ushered in a divisive Muslim Brotherhood presidency and led to a populist-backed military takeover and the rise of el-Sissi to the presidency.

The former military general said the aftermath of those years had cost Egypt $450 billion – a price everyone had to bear.

“We’ll solve the matter together. I say this to all Egyptians…we will end this matter together and pay its price together,” he said.

But critics argue that the government has missed opportunities for real reforms and is overspending on superfluous mega-projects while it builds new administrative capital. The government has touted the construction boom as a job engine and economic engine.

State influence in the economy and the “outsized role of military-related companies” have historically crowded out foreign investors and the private sector, said Hasnain Malik, head of equity research at Tellimer, an emerging markets investment analysis firm. The government’s plans to sell minority stakes in some state-owned companies “do not necessarily solve this problem,” he said.

Egypt’s elite can withstand rising costs and live comfortably in Nile-facing apartments and gated communities away from the hustle and bustle of Cairo. Life is getting worse for middle-class Egyptians, said Maha, a 38-year-old worker at a tech company and mother of two, who asked to be identified by her first name only so she could speak freely.

“I think we will eventually move down the social ladder and end up below the poverty line,” she said.

The government this summer borrowed $500 million from the World Bank and $221 million from the African Development Bank to help buy wheat. This includes about six weeks of a bread subsidy program that supports 70 million low-income Egyptians.

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China helped with a $2.8 billion currency swap. Saudi Arabia, the United Arab Emirates and Qatar stepped in with pledges of $22 billion in short-term deposits and investments.

“Having what they define as stability in Egypt is in their strategic interest. They really don’t want to go through a repeat of 2011 and its aftermath,” said David Butter, an associate fellow at Chatham House, an international affairs think tank. The Arab Gulf countries are also making short- and long-term strategic investments in Egypt, he said.

The government announced an “extraordinary” social protection program to be rolled out this month, targeting 9 million families with expanded cash transfers and meal vouchers. This is on top of other relief programs, including pop-up stands selling subsidized staples. Officials point to how they have managed the supply crisis caused by the pandemic and the war in Ukraine, saying there is enough wheat and other staples to last six months.

For some, leaving has promised more hope. According to the International Organization for Migration’s flowchart so far this year, Egyptians rank behind only Afghans as the leading nationality of “irregular arrivals” in Europe. Most come by sea.

As pressure on the Egyptian pound mounts, the government could devalue the currency again.

“It will hurt. It will increase inflation,” said Kaldas, the Tahrir Institute’s economics expert. “Bread subsidies are just one item in a family’s household. So for many families this will still be a lot of pain.”


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Aya Batrawy, The Associated Press

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