Too big to fail? The consequences of Egypt’s economic troubles.

The Explainer

Making ends meet has hardly been tougher for Egyptians.

In July, Egypt logged a record annualized rate of inflation of 38.2%, after setting the previous record (36.8%) in June. The annualized figure for food prices was 68.4%. The Egyptian pound is in free fall and has lost 50% of its value against the dollar since March 2022.

There is a shortage of currency as the cost of imported goods, particularly wheat, keeps going up.

With meat, poultry, and eggs now out of reach for the average family, the government is encouraging citizens to eat chicken feet – which, at times, can be hard to find due to demand.  

The heavily indebted country, the International Monetary Fund’s largest borrower, is on the brink of defaulting; 40% of Egypt’s budget services its debt. A badly needed $3 billion loan from the IMF is stalling over the government’s refusal to implement reforms.

And Russia’s pullout from the Black Sea grain deal last month dealt yet another blow to a country that received 80% of its grains and wheat from Ukraine and Russia.

What does it mean that a country of nearly 113 million people is nearing economic collapse?

Whom do Egyptians fault for the crisis?

For many, the blame rests on the shoulders of autocratic President Abdel Fattah al-Sisi, who seized power in a 2013 counter-revolution and promised stability and prosperity, wooing donors in the West and Persian Gulf.

General Sisi embarked on a series of ambitious and costly megaprojects. Using borrowed funds, the government built a reported $58 billion administrative city in the desert and an $8.2 billion Suez Canal expansion, as well as highways and coastal tourism zones. The projects benefited military-owned companies and allies, cementing his patronage network and hold on power, analysts say.

With a heavy debt load and shrinking private sector, the country was vulnerable to the economic shocks from the pandemic and Ukraine war. As poverty soars and families struggle to feed themselves, criticism of the president is at an all-time high.

Social media posts and graffiti criticizing Mr. Sisi – acts punishable by life in jail – are proliferating. Public figures are urging Mr. Sisi not to run for a third term. Pro-regime newspapers, pundits, and even members of Parliament are openly criticizing his economic policies, prompting the president to call in to talk shows to defend his record.

Yet Egyptians, 12 years removed from a revolution that ousted former President Hosni Mubarak, are unlikely to rise up against the president, analysts say. Political groups, civil society groups, and activists have been banned, exiled, jailed, or killed.

How are Egyptians reacting instead?

Already, 2022 saw a record 22,000 Egyptians migrate to Europe, mainly by boat, with Egypt becoming the top country of origin for irregular migration to Europe, according to the International Organization for Migration.

Experts say this number is set to be eclipsed in 2023.

“The situation is increasingly seeming hopeless, which is why we are seeing an uptick of irregular immigration from Egypt, which we never had before,” says Timothy Kaldas, deputy director at the Tahrir Institute for Middle East Policy, a Washington-based think tank.

In June, an estimated 200 Egyptians were among the more than 600 dead in the Adriana boat capsizing tragedy near Greece, the deadliest migrant boat disaster in recent history.

Despite the deaths at sea, Egyptians are still reportedly selling homes and land and taking loans to pay the $4,000 to $5,000 fee for smugglers to traffic them from Libya across the Mediterranean to Europe.

Since April, Egypt has hosted an influx of 250,000 Sudanese refugees; amid price shocks and inflation, Egypt tightened its borders in June, restricting the entry of Sudanese fleeing war.

Is there any relief in sight for Egypt?

Not much. The IMF and Gulf countries insist Egypt carry out structural reforms and introduce a flexible exchange rate before they provide it with additional funds, measures Mr. Sisi is unable or unwilling to do.

Rather than lessening the army’s hold on the economy, a key IMF requirement, the government is expanding it, with military subsidiaries recently buying a 20% stake in local energy company Taqa.

Gulf states, which have poured $40 billion into Egypt since Mr. Sisi’s rise to power, are balking at buying the country’s state assets. Egypt is struggling to raise cash.

“It is hard to throw money at a corrupt regime that has lit an enormous sum of money on fire and has shown little interest in changing their approach, the basic step towards reform,” says Mr. Kaldas.

“There is no appetite for bailouts, and why would there be?”

Instead, allies and neighboring states have shown a willingness to provide just enough aid to stave off collapse, but not enough to enable Mr. Sisi’s policies.

One lifeline is an agreement with United Arab Emirates’ Abu Dhabi Fund for Development for a $400 million grant to help pay for wheat imports through the fall. Yet much of that aid is partly offset by the 8.6% rise in global wheat prices caused by Russia’s pullout from the United Nations-backed grain deal.

With no billion-dollar saviors in sight, whether Egypt is “too big to fail” will be put to the test in the months ahead – as will Egyptians’ resilience.