All of a sudden, Egypt has gone from the brink of an economic collapse to unlocking more than $40bn of investments.
On March 6, as part of that, the country delivered its biggest-ever interest rate hike and allowed its currency to weaken more than 38% in a long-awaited flotation.
Egypt agreed an expanded $8bn support programme with the International Monetary Fund last Wednesday.
Ahead of the move, the country secured a $35bn investment deal with UAE sovereign fund ADQ for the development of a peninsula on its Mediterranean coast and other projects, easing a long-running foreign currency crunch.
The next step for the country, home to 105mn people, may be a multi-billion dollar land investment from Saudi Arabia.
The moves are the culmination of global efforts — led by Gulf states and the IMF, and backed by the US — to support a country whose stability is seen as crucial for the Middle East and which has been hammered by soaring inflation and a war on its border.
Foreign investors are already hailing the turnaround and saying they expect Egypt to attract billions of dollars from bond traders in the coming months.
Egypt’s credit outlook has been raised to positive by Moody’s Ratings as the nation unlocked fresh funding from the IMF and bilateral lenders.
Causes for Egypt’s economic woes date back decades, such as subpar industrial development due to poor planning and heavy bureaucracy, and export policies that created a persistent trade deficit.
An over-valued currency, weak property rights and institutions, and an overbearing state and military have deterred investment and competition, according to economic experts.
Remittances in 2022-23 fell 30% to $22bn as workers abroad backed away from transfers at the overvalued official exchange rate.
The conflict in the Gaza Strip, on Egypt’s northeastern border, has brought risks to tourism and to Suez Canal revenues; receipts from the waterway dropped by about 50% earlier this year.
Authorities have also pointed to external shocks, including the Covid-19 pandemic and war in Ukraine.
The pound has fallen by more than two-thirds against the dollar since March 2022 in a series of devaluations.
Official data classified about 30% of the population as poor before Covid-19 struck, and analysts say numbers have risen since then. As many as 60% of Egypt’s 106mn citizens are estimated to be below or close to the poverty line.
Egypt’s latest bout of economic tumult began in 2022, when Russia’s invasion of Ukraine sent commodity prices surging and pushed up the cost of imported wheat and fuel. Bond investors fled en masse, pulling about $20bn from the country, according to a Bloomberg report.
Under the latest IMF agreement, authorities are committing to exchange rate flexibility, as well as fiscal discipline in order to bring down inflation and the trade deficit.
The policy plan that led to the deal also includes structural reforms to encourage private-sector growth, partly by removing exemptions and privileges for the country’s powerful state-owned enterprises.
Egypt’s hardships are likely to worsen in the near term. Consumers are likely to feel the sting of the latest devaluation in higher consumer prices, with inflation already running near 30%.
But authorities are banking on the reforms attracting foreign investors back to the country and ending its worst economic crisis in decades.
The World Bank will provide Egypt with $3bn in support, Finance Minister Mohamed Maait said on Sunday. Egypt also expects the European Union to announce its support package soon.
Longer term for Egypt, the Arab world’s most populous nation, the priority now should be to build on the momentum with meaningful structural reforms that will help attract direct investment, create jobs and improve living standards.
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