Analysis |

Life in Egypt Is Getting Harder, but Don't Dare Protest About It

A new study predicts that Egypt’s public debt will climb to half a trillion dollars in coming years. But while economists offer pessimistic views, the public is likely to find itself in prison if it dares criticize the high cost of living

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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Egyptian women carry food trays after washing them at a village, near Giza, on the outskirts of Cairo, earlier this year.
Egyptian women carry food trays after washing them at a village, near Giza, on the outskirts of Cairo, earlier this year.Credit: REUTERS/Amr Abdallah Dalsh
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Three singers from central Egypt’s Asyut province were arrested last month and now await trial after creating a music video that angered the regime. The trio, who usually work as security guards and perform for pleasure in their spare time, reworked a song by the legendary singer Abdel Halim Hafez. In it, they took aim at the high cost of living and the difficulties of life in Egypt.

Such protest is forbidden: the law prohibits the spreading of false information and for national security to be protected. These two sweeping sections of the penal code basically allow the authorities to place almost anyone on trial.

The video was posted on TikTok and seen and shared by millions, and soon came to the attention of Egyptian prosecutors. If the three men are convicted, they could each be fined up to $1,000 and face up to a year in prison.

The Egyptian courts have determined that criticism of economic conditions is a form of protest that could undermine public order, as it might lead people to take to the streets, demonstrate and confront the security forces – and from there the road to harming national security is a short one.

A man sits by his car stall in Cairo, in 2022.Credit: Joost J. Bakker
Street scene in Cairo, in 2022.Credit: Joost J. Bakker

But it would seem the regime differentiates between popular criticism, which is deemed “dangerous,” and complex economic analyses based on the government’s actions. The latter usually does not reach the eyes and ears of the general public; only the elite and those in the know.

Of course, most Egyptians do not need any sophisticated economic reports to understand that their low wages are buying fewer goods than last year – fuel has become more expensive and rents have risen – but economists and researchers are providing the context, causes and implications of the government’s economic policies. Even so, the professionals tread carefully so as not to place the responsibility on President Abdel-Fattah al-Sissi himself.

Achieving this is no simple task. Egypt’s financial ministries provide optimistic growth and development data, present themselves as having an unfailing ability to deal with any economic crisis – whether it be the coronavirus pandemic or the war in Ukraine. They unveil grandiose plans for the construction of tens of thousands of housing units and the privatization of government companies, including those owned by the military. From the reports issued by international credit rating agencies such as Fitch and S&P, they cherry-pick the positive parts and gloss over everything else.

But a more detailed study of the government data presents a much gloomier picture. One recent example is a leaked report that contains the true figures on the government’s purchase of domestic wheat. In March, it asked farmers to sell it 60 percent of their harvest to help the government overcome a wheat shortage and rise in global grain prices as a result of the war in Ukraine.

A stall in Cairo, this year.Credit: Joost J. Bakker

In order to sweeten the deal, the government offered farmers a relatively high price of about 5,800 Egyptian pounds ($315) a ton. Officials expected that they would be able to buy 6 million tons of wheat domestically, up from 3.5 million tons last year, thus preventing any flour shortages due to the war.

However, most farmers rejected the government’s offer, which was still about 3,000 Egyptian pounds below the price in the global market. Instead, they preferred to keep the harvests for themselves, even to feed it to their livestock because the price of fodder has risen so dramatically.

As a result, the government won’t be able to supply flour to feed its 105 million citizens at the low prices it was counting on – with serious implications for the state budget.

‘Bankruptcy is inevitably coming’

The longer-term effect of this policy failure can be seen in a fascinating report released last month by the Egyptian Institute for Studies, whose headquarters in Istanbul offer it more leeway than its peers operating in Egypt.

Egypt's Central Bank headquarters are seen in downtown Cairo, Egypt, in March. Credit: MOHAMED ABD EL GHANY/ REUTERS

The study, which was written by Dr. Ahmed Zikrallah, predicts that Egypt will be forced to borrow $74 billion this year and perhaps more than $110 billion in the 2024-25 fiscal year, adding to the public debt that currently stands at more than $360 billion. Debt will ultimately reach half a trillion dollars, the report predicts.

What this means is that most of the government’s budget will have to be used to service debt. “The Egyptian economy has fallen in the vicious circuit of loan rotation, which means new borrowing to repay interests of old loans,” Zikrallah writes. “Egypt’s declaration of economic bankruptcy is inevitably coming.”

To finance the worsening deficit, the government will have no choice but to issue bonds at very low prices. However, the experience of the last two months shows that such a strategy will be difficult to implement because foreign investment is fleeing the country.

Zikrallah notes that since the outbreak of the war in Ukraine, there has been an outflow of some $15 billion in so-called “hot” money – capital that is invested in short-term bonds and moves from country to country based on where investors can obtain the highest rate of interest. That’s about half of all the hot money that had been invested in Egypt.

The delay by Egypt’s central bank in raising the interest rate, which would have deterred the exodus of hot money, cost the government about $2 billion in declining foreign currency reserves, which now stand at $37 billion. The lower reserves give Egypt less of a cushion for covering the cost of imports: today, the country is estimated to have about five months’ import coverage.

Yemeni women visiting the Giza Pyramids necropolis on the outskirts of Cairo in 2020.Credit: KHALED DESOUKI / AFP

In addition, Egypt’s agreement with the International Monetary Fund entitles it to draw $3.5 billion in funds as needed. Egypt received a $12 billion loan from the IMF in 2016, while a second, smaller, one was approved during the COVID pandemic. The IMF has signaled its readiness to lend more, but with the recent rise in U.S. interest rates and the devaluation of the Egyptian pound to the U.S. dollar – now 18.5, down from 15.7 – Egypt’s ability to repay will have to be examined a lot more carefully. Any future loan terms are likely to be tougher: for instance, the IMF may demand that Cairo speed up the pace of privatization.

The privatization issue has already been raised several times in discussions between the IMF and Egyptian officials, with the Egyptians committing to sell two companies controlled by the army. Despite this pledge being made as early as 2020, no sale has yet been completed.

Last month, President Sissi reiterated his vow to sell six additional government companies, including those controlled by the military, but it’s doubtful anyone is buying that since next year’s state budget contains no line item showing anticipated revenues from privatization sales.

Still, it seems the Egyptian Institute for Studies’ gloomy report has made little impression on the regime. In Egypt, they say no one ever drowns in the Nile because there’s always someone there to offer a lifeline – and so far at least, that adage has proven accurate.

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