Egyptians are trying to anticipate the future of their country amid severe and successive financial crises, of which the government can bear only 50 percent! The remaining percentage is the result of external influences on the Egyptian economy, which is exposed globally without protection or insurance.
After the financial and social crises struck most families, individuals, and companies in Egypt, they began to plan for their future away from government planning, which has so far failed to protect them from the repercussions of external factors, after Cairo decided to expose its internal economy to the global economy without prior qualification, and linked prices Local fuel at international prices, devaluing the local currency and leaving it to supply and demand with no real alternatives, in addition to raising in-kind support, which contributed to increasing pressure on the masses of Egyptians.
Some Egyptians believe that their country is on the path of Argentina, which has resorted to borrowing from the International Monetary Fund 22 times since its accession in 1956, and now owes the Fund $43 billion. Until Argentines began to distrust the national currency, the peso, and began saving their money in dollars, at a time when half the population was living on government subsidies due to poverty.
As for the other team, it believes that Egypt is following the same path as Greece, which suffered from a severe financial crisis from which it has now emerged and its citizens have begun to breathe a sigh of relief, in what has been called an “economic miracle,” according to analysts and economists. However, on August 20, 2022, Athens officially emerged from the European Union’s enhanced oversight framework, which was monitoring Greece’s budget, spending determinants, and government priorities, from a crisis that lasted 12 years.
Between this and that, the pound has fallen by more than half against the dollar since March 2022. Despite the repeated devaluations of the currency, the price of the dollar is about 60 Egyptian pounds on the black market, compared to an official price of 31 pounds.
Although the pricing of everything, including goods, services, food, and drinks, is now done in the black (parallel) market dollar, due to the failure of current government policies to provide it, the government has dared and dared to recently announce a new document that outlines and defines the priorities for action at the policy level for the Egyptian economy until the year 2030, under the name: “The document of the most prominent strategic directions of the Egyptian economy for the new presidential period” (2024-2030). This comes at a time when demands are increasing for the inevitability of a ministerial change, provided that the new government adopts the strategy to bear the repercussions of its implementation.
Egypt is facing an economic crisis amid record inflation and a severe shortage of foreign currency, in addition to the high levels of borrowing over the past eight years to pay off foreign debts, which has become an increasingly burdensome burden on the Egyptian budget. It was reflected in the living standards of all Egyptians.
Egypt has a financing program with the International Monetary Fund, estimated at about $3 billion, and it is expected to be increased to $10 billion, after the burdens that Egypt bore as a result of the Israel-Gaza war crisis.
Securitization of the dollar
The most important thing stated in the current document, published on the website of the Information and Decision Support Center, affiliated with the Egyptian Council of Ministers, is that there is a study to securitize dollar resources, in order to use them to pay off short-term debts.
Pound and dollar banknotes with the waters of the Nile in the background in central Cairo (AFP)
Although it seems like a quick solution to avoid the non-payment crisis, this proposal focuses on repaying debts as a primary goal, without addressing any proposals to reform the borrowing system, in order to reduce the debt rate, relative to the gross domestic product, and prevent it from getting out of control.
Egypt’s foreign debt exceeds more than $160 billion by the end of 2023, compared to about $40 billion in 2014, which is a noticeable increase that will represent a great risk if borrowing continues at the same rate in the same time frame.
Moody’s lowered its outlook on the classification of Egyptian government issues to “negative” from “stable”, in light of the country’s declining ability to bear government debt and the rise in external pressures. It also confirmed the long-term rating of issuances in foreign and local currencies at “Caa1.”
However, the government’s proposal to securitize the dollar allows for the continuation of the same management style and more new debts, in addition to depriving Egypt of regular dollar revenues for many years. Although rescheduling debts while adopting institutional reforms may represent a radical solution.
Regarding the exchange rate, the document stated that Egypt will continue to adopt a flexible exchange rate policy, even though this is not happening on the ground, while the second strategic direction, among the most prominent strategic directions of the Egyptian economy, addresses “adopting predictable economic policies that support macroeconomic stability.” It aims to achieve price stability, financial discipline, put public debt on sustainable paths, and implement a program to enhance foreign exchange receipts with a target revenue of $300 billion by the end of 2030, representing three times the current levels. According to the document.
The Egyptian Center for Economic Studies, in a research note seen by Asharq Al-Awsat, believes that the document’s setting of 36.83 pounds to the dollar as the exchange rate, according to the International Monetary Fund, is “a number that is not present in the Fund’s latest report, and the Fund is also careful not to offer a specific price.” The basis of flexibility is dealing through market forces, that is, supply and demand.
Conflict in goals
The Egyptian Center highlighted a conflict in the objectives of the strategy, and explained in the memorandum that the document expects “increasing investment to 25 percent or 30 percent of the gross domestic product, which is an expansionary policy that is not consistent with the financial consolidation and control of inflation that the same document mentions, especially in light of “The role of the private sector is shrinking.”
There is a proposal to establish a company to promote investment abroad, and another to export real estate, and despite the importance of the target of these companies, the “Egyptian Center for Economic Studies” believes that their inclusion in the strategic directions “is considered undue haste, because it comes without studying what currently exists to achieve These goals are achieved without detailed cost-benefit studies for these new companies.
The research note explained that, in the same context, “the identification of 5 new free zones, including areas that deal with services, as in the case of information technology, comes without evaluating the position of the free zones since their establishment until now. It is not logical for the transformation of the free zone to be the solution proposed to eliminate the problems.” Bureaucracy, stimulating investment and export, and in the same way, it is illogical to rely on encouraging investment and export through incentives such as the golden licence. It is better for all licenses to be golden.”
She added that “investment should not need a special law, but rather the business environment should be fully adopted and within a rapid time frame commensurate with the needs of the stage, and the required unification of entities (again institutional reform) should be adopted to achieve this goal.”
2024-01-21 16:50:37
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