Abdel Fattah Al-Sissi’s dreams of grandeur are collapsing. The policy of megaprojects that the Egyptian raïs has promoted since he came to power in 2013 to adorn Egypt with a modernity that resembles a Gulf monarchy – from the construction of a new high-tech capital to the Grand Egyptian Museum of Cairo – has shown its limits.
The era of lavish spending, made possible by the largesse of the godfathers of this same Gulf and the digging of the public debt, is over. The war in Ukraine precipitated the collapse of the Egyptian economy. The International Monetary Fund (IMF), encouraged by Riyadh and Abu Dhabi, is calling for an austerity cure and a change in the economic model in depth. According to the international financial institution, the time has come to get out of the state interventionism on which the army has built an economic empire, to bring back foreign investment and restore its place to the private sector, which is at half mast.
Cairo no longer has time to procrastinate. While recovering timidly from the effects of the Covid-19 pandemic, in the spring of 2022, Egypt saw 23 billion dollars (21.4 billion euros) of foreign capital disappear from its economy, a consequence of the global shock wave caused by the war in Ukraine. Short of cash, it is now faced with an obligation: to repay a debt estimated at 93% of its gross domestic product (GDP).
The weaknesses of this emerging economy were supposed to have been corrected thanks to the plan designed with the IMF after a first crisis in 2016. They have reappeared, gaping. This time, the IMF and the Gulf sponsors have learned the lesson and are demanding that Cairo reduce state and military control over the economy.
Back to square one
The IMF granted, in December 2022, a new loan of 3 billion dollars, making Egypt one of its main debtors. “It’s a small loan, made to buy time, test the reformist will of the regime and see if the Gulf decides to invest”, analyzes Ishac Diwan, professor at the Paris School of Economics. The financial institution is counting on investors from the Gulf to fill the external financing gap, estimated at 17 billion dollars for the next four years.
At the start of the crisis, Gulf lenders came to Cairo’s rescue, with a total of $23 billion in central bank deposits and investments. But, unlike 2016, when Riyadh and Abu Dhabi signed a blank check to President Sissi to stabilize his power, they are now setting their conditions.
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