Egypt is facing a severe economic crisis that threatens the livelihoods and rights of millions of its citizens. The country’s debt has reached record levels, inflation and food prices have soared, and social protection measures have been inadequate. The crisis has been exacerbated by the impact of the Covid-19 pandemic, the Russia-Ukraine war, and the Israel-Gaza conflict. In this article, we will examine the root causes and consequences of Egypt’s economic woes, and the challenges and opportunities for recovery.
One of the main drivers of Egypt’s economic crisis is its mounting debt, both external and internal. According to the Central Bank of Egypt, the country’s total debt reached $392 billion by the end of the 2020/2021 fiscal year, equivalent to 89.84 percent of its gross domestic product (GDP). This includes $137 billion in external debt, which is four times higher than in 2010, and $255 billion in internal debt, which is almost double the amount in 2010.
Most of the external debt came from the sale of bonds in the international market, and borrowing from international institutions, such as the International Monetary Fund (IMF), and international banks. Egypt has received four loans from the IMF since 2016, totaling $17.8 billion. The latest loan, approved in December 2022, will provide Egypt with $3 billion over a 46-month period, and is expected to catalyze another $14 billion in foreign funding.
The IMF loans have been conditional on implementing a series of economic reforms, such as devaluing the currency, cutting subsidies, raising taxes, and privatizing state assets. These reforms have been praised by the IMF and some economists as necessary to restore macroeconomic stability and attract foreign investment. However, they have also been criticized by human rights groups and some analysts as harmful to the economic rights and welfare of millions of Egyptians, especially the poor and vulnerable.
The Cost of Living Crisis: Inflation, Food Security, and Social Protection
Another major challenge facing Egypt’s economy is the rising cost of living, which has eroded the purchasing power and living standards of many Egyptians. The country has experienced high inflation rates in the past decade, reaching a peak of 33 percent in 2017, and averaging 13.9 percent in 2020. Inflation has been driven by several factors, such as the depreciation of the pound, the removal of subsidies, the increase in taxes, and the disruption of supply chains due to the pandemic and the war.
One of the most affected sectors by inflation is food, which accounts for about 40 percent of the average household expenditure in Egypt. Egypt is one of the world’s largest importers of wheat, and relies heavily on imported food items to meet its domestic demand. The depreciation of the pound has made imports more expensive, and the war in Ukraine, a major wheat supplier, has further threatened food security. By October 2023, food prices had climbed by 37 percent from the previous year, and they continue to rise.
The government has tried to mitigate the impact of inflation and food price hikes by expanding its social protection programs, such as cash transfers, food subsidies, and pensions. The latest IMF loan agreement includes improved efforts to address deep-seated structural problems such as the opaque role of the military in the economy and inadequate social protection. However, these measures have been insufficient to protect millions of Egyptians from poverty and hunger. According to the Central Agency for Public Mobilization and Statistics (CAPMAS), about one in three Egyptians lived below the national poverty line in 2020, and this number has most likely increased due to the pandemic and the economic crisis.
The Regional and Global Context: War, Conflict, and Uncertainty
Egypt’s economic crisis cannot be understood in isolation from the regional and global context, which has posed additional challenges and risks for the country. The Covid-19 pandemic has had a devastating impact on the global economy, affecting trade, tourism, remittances, and investment. Egypt has been hit hard by the pandemic, which has infected over 1.5 million people and killed over 85,000 in the country. The pandemic has also disrupted the health system, the education sector, and the informal economy, which employs about 60 percent of the workforce.
The war between Russia and Ukraine, which erupted in February 2023, has also had negative repercussions for Egypt’s economy. The war has disrupted the global wheat market, on which Egypt depends heavily, and has increased the geopolitical tensions and uncertainty in the region. Egypt has expressed its support for Ukraine’s sovereignty and territorial integrity, and has condemned Russia’s aggression. However, Egypt also has strong economic and military ties with Russia, which is a major arms supplier and a partner in several megaprojects, such as the Dabaa nuclear power plant and the Russian Industrial Zone.
The conflict between Israel and Gaza, which escalated in May 2023, has also affected Egypt’s economy and security. Egypt has played a mediating role between the two sides, and has tried to broker a ceasefire and a political solution. Egypt has also provided humanitarian aid and assistance to the people of Gaza, and has opened its border crossing at Rafah to allow the passage of wounded and aid workers. However, the conflict has also increased the security threats and instability in the Sinai Peninsula, where Egypt has been fighting a long-running insurgency by militant groups affiliated with the Islamic State.
The Way Forward: Challenges and Opportunities for Recovery
Egypt’s economic crisis is not a new phenomenon, but a culmination of decades of mismanagement, corruption, and repression. The country has faced several economic shocks and crises in the past, such as the 2011 revolution, the 2013 coup, the 2015 plane crash, and the 2016 currency crisis. However, the current crisis is arguably the most severe and complex, as it combines multiple internal and external factors that have strained the economy and the society.
The government has adopted a narrative of resilience and optimism, and has claimed that its economic reforms have yielded positive results and have prepared the country for recovery. However, this narrative has been challenged by the reality on the ground, and by the voices of dissent and discontent that have emerged from various segments of the society, such as workers, professionals, activists, and journalists. The government has responded to these voices with repression and intimidation, and has tightened its control over the media, the civil society, and the political space.
The way forward for Egypt’s economy is not clear or easy, but it requires a fundamental shift in the economic and political system. The country needs to address the root causes and structural problems that have plagued its economy for decades, such as the lack of transparency, accountability, and participation, the dominance of the military and the security apparatus, the inequality and exclusion of the majority, and the dependence and vulnerability to external shocks. The country also needs to seize the opportunities and potentials that exist within its economy and society, such as the human capital, the natural resources, the cultural diversity, and the regional and global partnerships.
