Business / Finance

Opinion: A Lebanon-like scenario for Egypt?

“Egypt’s contemporary economic model is marked by the unprecedented enormity of its expenditure compared to its resources and revenues.”

Apr 07, 2022 | By Michel Santi
Egyptian Art
Image: Tom Podmore/Unsplash

Egypt’s contemporary economic model is marked by the unprecedented enormity of its expenditure compared to its resources and revenues. This has been the case since the accession to power of President Abdel Fattah al-Sisi. In fact, he and his government act as if Egypt enjoyed the same kind of petrol or gas income as the ‘Petromonarchies’, or as if the country had a giant industry and export like China. However, Egypt can alas not claim to be one or the other since its trade deficit is in the order of US$45 billion per year. Under the urges of Sisi, Egypt nevertheless behaves like a beggar but with a ferocious appetite. It is putting intense pressure on its citizens by reducing social aid, a tax system that punishes the worst-off, and increasing the cost of what can no longer acceptably be called “public services”. At the same time, 30 million Egyptians are currently living on US$3 a day. And as a reminder, the country’s per capita GDP is 140th out of 213.

Now, from atop its debt has quadrupled in 10 years and now counts to US$375 billion. Egypt’s survival depends entirely on foreign funding, and paying off just the interest on its debts to national and international creditors takes up more than a third of its annual budget. However, Egypt is largely dependent on foreign nations to meet the basic agricultural needs of its population. It is importing more wheat than any other country and producing only a third of what its citizens eat. At the same time, the luxurious tastes and extreme opulence of its president are dragging the country into a new administrative capital in the desert around Cairo that has cost nearly US$60 billion. Another US$25 billion goes into the nuclear reactor for a country that has a surplus of electricity, and US$8 billion to increase the capacity of the Suez Canal. Its income, however, has been stagnant there for several years. Lastly, a sum goes into a bulimia of weapons acquisitions that have made the country the fifth-biggest buyer in the world in this sector.

Egypt: National debt from 2016 to 2026. Image: Statista

With foreign investment cut half over the last 40 years, is Egypt — condemned to wither away in a Lebanon-like catastrophe — dependent on “fresh” dollars coming in to nourish its population? Let us cast our minds back to the Lebanese Ponzi scheme that worked and kept the illusion going while being funded by the Saudis. And also to the infamous “financial engineering” undertaken by the Lebanese central bank to doctor its accounts: all that appears to now be inspiring Egypt’s monetary authorities. Their inventiveness today allows the Egyptian government to declare only half of its debt, with the rest owned spread across the central bank and public businesses. The country is the second biggest debtor to the IMF after Argentina, fresh in the knowledge that it is also in enormous debt to the World Bank, the African Development Bank, and even Germany.

However, a fundamental difference between Lebanon and Egypt is the latter holds vital strategic importance for the USA, Russia and increasingly, China. President al-Sisi is masterfully exploiting these geopolitical attributes by showing great regional diplomatic proactivity, buying weapons from everyone to look good, and even threatening Europe by releasing six million refugees upon it that the country shelters. With its 6.5 million inhabitants, we may note that Lebanon is not a heavyweight compared to a nation like Egypt, which has more than 100 million. If Lebanon were to go bankrupt, it would not be comparable to the consequences — for the region and for the world — if Egypt were to collapse, a country that is considered with good reason to be “too big to fail”.

Michel Santi

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