How severe are Egypt's economic problems?
The government seeks to control the deficit by raising the prices of subsidized goods and services, but inflation has wiped out a large part of the gains.
Some of the causes of the economic crisis go back decades, such as weak industrial development as a result of poor planning and severe bureaucracy, and export policies that created a chronic trade deficit.
The pound's overvaluation, weak property rights and institutions, and the dominance of the state and army hindered investment and competition.
The borrowing spree during the era of President Abdel Fattah El-Sisi caused Egypt to accumulate heavy foreign debts. Foreign creditors are avoiding Egyptian debt instruments, prompting the government to finance the growing deficit by borrowing domestically despite high interest rates, leading to a larger deficit.
This, combined with the expansion of the money supply, resulted in a devaluation of the currency and higher inflation.
The government is seeking to control the deficit by raising the prices of subsidized goods and services, but inflation has wiped out a large part of the gains. Foreign investment outside the oil and gas sector is also minimal.
Remittances from Egyptians abroad decreased in 2022-2023 by 30 percent to $22 billion, as workers abroad refrained from transferring at the overestimated official exchange rate.
Increasing Suez Canal transit fees and tourism revenues play an important role, but the war between Israel and Hamas in the neighboring Gaza Strip threatens to slow the growth of tourism.
Sisi often blames Egypt's economic difficulties on the unrest that followed the 2011 popular uprising as well as on rapid population growth.
The World Bank estimated annual population growth at 1.7 percent in 2021. Authorities also pointed to external shocks such as the Covid-19 pandemic and the war in Ukraine.
The economy is growing steadily but at a slow pace. According to the Central Bank, the economy grew 3.9 percent on an annual basis in the last quarter of 2022 as well as the first quarter of 2023, down from 6.7 percent in the fiscal year 2021-2022. The rise in population has weakened growth, and many Egyptians say that the level of… Their livelihood deteriorates.
A severe dollar shortage has curbed imports and caused a backlog of goods at ports amid restrictions on letters of credit, with repercussions on local industry. The prices of many basic food items have risen much faster than the rate of inflation in Egyptian cities, which accelerated to a record rate of 38 percent in September. The pound has fallen by half against the dollar since March 2022.
Despite repeated devaluations, the dollar costs about 49 Egyptian pounds on the black market compared to an official rate of 31 pounds.
The external debt payment schedule is heavy. There are $42.26 billion due in 2024 alone, including $4.89 billion to the International Monetary Fund.
High interest rates and a weak currency have increased the cost of servicing debt. Ministry of Finance data indicate that interest payments swallowed up more than 45 percent of total revenues in the year ending at the end of June.
Official data classified about 30 percent of the population as poor before the Covid-19 pandemic, and analysts say the numbers have risen since then. It is estimated that up to 60 percent of Egypt's 104 million citizens live below or near the poverty line.
Unemployment has fallen to just over 7 percent, but labor market participation has also declined steadily in the decade to 2020. Some aspects of the public education system are collapsing. Many graduates seek to work abroad if given the opportunity.
Besides spending on regular expenses, Egypt has spent a lot on infrastructure under Sisi. This includes housing, a number of new cities, and the construction of highways. The most prominent mega project is the establishment of the new administrative capital in the desert east of Cairo, at a cost of $58 billion.
Egypt's arms imports have also increased over the past decade, making it the third largest importer in the world, according to the Stockholm International Peace Research Institute.
Officials say they have increased spending on social programs for the poor, including a cash grant program covering about five million families, but some say social benefits are insufficient to protect living standards.
Western and Gulf countries widely view Egypt under Sisi as the backbone of security in the turbulent region.
Cairo received billions of dollars in deposits and investments from its allies in the Gulf, such as Saudi Arabia and the UAE, after the shock caused by the Russian invasion of Ukraine.
But the Arab Gulf states have tightened their conditions for pumping new funds, and are increasingly looking for investments that generate a return. Although the Gulf Arabs have expressed their solidarity with Egypt since the outbreak of the Gaza crisis, no new aid has been announced.