CAIRO (Middle East Eye) – Egypt has agreed three bailouts with the International Monetary Fund (IMF) under the government of President Abdel Fattah el-Sisi, in office since 2014. It is currently the second biggest borrower from the IMF after Argentina.
The IMF deals came against the backdrop of a shortage in foreign currency and skyrocketing debts. Egypt’s foreign debts rose from almost $40bn in 2012, to almost $155bn in 2022.
Apart from the support it has received from international financial institutions, including the IMF, the World Bank and the African Development Bank, Egypt has also received an estimated $92bn from Persian Gulf countries in the past decade.
While Persian Gulf deposits in Egypt in the two years after Sisi came to power boosted the country’s foreign reserves, that support has gradually declined since 2015 as Egypt struggled to repay its debts and finance its import-dependent economy.
Increased borrowing also means that most of the government’s expenditure has been dedicated to debt repayments rather than health, education and economic projects.
“The government should have channeled this spending to production projects that can generate revenues,” Alia al-Mahdi, a professor of economics at Cairo University, told MEE. “Overspending on infrastructure projects has contributed to the financial crisis we suffer from now.”
Ishac Diwan, a Lebanese economist and former senior World Bank official, said that “the combination of the IMF’s stamp of approval, and very liquid international markets after 2016, have allowed Egypt to borrow a lot so as to delay necessary reforms”.
“It now finds itself again with a very weak economy and a larger debt problem,” he told MEE.
Last month, Egypt received the first tranche of the IMF’s latest $3bn loan, which is intended to help it address the economic repercussions of the conflict in Ukraine.
The war has dried up Egypt’s coffers and opened the door for possible unrest, with its economic toll hitting the pockets of poor and middle-class Egyptians.
Nevertheless, the IMF is imposing a set of stringent conditions on Cairo so that the lender could move ahead with the deal over the next 46 months.
The IMF says the conditions are necessary to preserve the stability of the overall economy and encourage private sector-led growth.
They also aim to produce a shift to a flexible exchange rate regime (in which the value of the currency is determined by supply and demand) and monetary policy, to reduce inflation and consolidate the country’s debts.
But the resulting devaluation of the pound is exacerbating the woes of the majority of Egypt’s 104 million population, with an estimated 60 million people living below or just above the poverty line.