Africa AMU APU Intelligence Original

Egypt: Economic Woes and the Effects on US Foreign Policy

International loans and macro economies can make many readers’ eyes glaze over. While graphs and numbers can seem important to economists and no one else, these graphs represent financial developments that have a profound influence on politics and international relations. One such example is the International Monetary Fund (IMF) loan of about $3 billion dollars to Egypt on Dec. 16, 2022, according to an IMF press release.

Kristalina Georgieva, IMF’s Chairman of the Board, sounded optimistic concerning the Egyptian economy. Georgieva stated, “Egypt showed resilience to the COVID-19 crisis, supported by previous Fund-supported programs. While economic recovery gained momentum in 2021, imbalances also started building amidst a stable exchange rate, high public debt, and delayed structural reforms.

“Russia’s war in Ukraine crystallized these pre-existing vulnerabilities, triggering capital outflows, and, in the context of a still-stabilized exchange rate, reduced the central bank’s foreign reserves and banks’ net foreign assets and widened the exchange rate misalignment.”

Despite the IMF Loan, Egypt Will Still Have Major Economic Problems

However, the economic situation in Egypt is far more complicated, and its future is not as rosy as the IMF suggests. The Tahrir Institute for Middle East Policy, a leading think tank, has warned of the dire state of Egypt’s economy for a while.

Timothy Kaldas of the Tahrir Institute notes that the continued devaluation of the Egyptian pound versus the U.S. dollar remains an ongoing problem. In a recent article, Kaldas said, “The IMF’s new program in Egypt, built on a $3 billion loan from the Fund along with an anticipated $14 billion in additional financing is a Hail Mary to try to stabilize Egypt’s economy in the midst of the country’s latest financial crisis and hard currency shortage. Central to the IMF’s program is the Fund’s demand that Egypt transition to a permanent flexible exchange rate, hence the devaluation and moves toward a full float being witnessed currently.”

[Related article: An Insightful Analysis of the US-Egypt Relationship]

The Need For Privatization

There is little mystery here: Egypt needs privatization. In Egypt, there is a centralized economy and the military controls many companies that supply essential services to the entire market. The Egyptian economy has been under a stranglehold from the government and the military for decades.

Beesan Kassab of the Tahrir Institute is pessimistic about the feasibility of a free market in a non-democratic country like Egypt. She says, “According to the 2021 IMF report, the state owns more than 300 companies: these include companies owned by the public enterprise sector, the public sector, and the armed forces.

“In addition, there are approximately 645 companies or joint ventures that the state owns with the private sector, plus 53 economic bodies. Each is a potential target for privatization over the next four years.

“Regardless of the validity of the reasons behind privatization, the fairness of value, or the impact on the market, it is inevitable that the Egyptian people, the owners of these assets, will not be allowed to express their opinion on the matter. They will not be able to stop the implementation of a decision related to their properties. After all, the economy would become more ‘free,’ according to IMF standards, while society’s right to oversee its property has been taken away.”

But setting aside this interesting, albeit important situation, the IMF is hoping for a quick process of privatization.

The Failure of Egypt’s Economy Would Have Repercussions for the US and Other Countries

The economic future of Egypt is important not only for its residents, but also the U.S. and other nations. Egypt is a political and military powerhouse in the Middle East and North Africa, so economic stagnation will not be limited to Cairo but will send ripples all over the Middle East.

Also, Egypt has a very young population. According to Statistics Times, Egypt is expected to have almost 160 million citizens by 2050, making it one of the most populated countries in the world. Economic instability in such a country could cause massive waves of refugees.

Who Can Help?

The U.S. might be able to help Egypt with its economic problems because of its unique relationship with the Egyptian military. In 2022, I published a book review on an insightful analysis of the unique military relationship between the U.S. and Egypt. The review was of a book written by Colonel (Ret.) David M. Witty, author of “The U.S.-Egypt Military Relationship: Complexities, Contradictions, and Challenges,” which he wrote as a part of his fellowship in the Washington Institute.

This research examined the reliance of the Egyptian army on U.S. military aid and weapons. It covered the time period when the Egyptian army was transformed from a Soviet-modeled army to a Westernized military force relying exclusively on U.S. weapons.

I noted that the book aptly pointed to two major issues: “The book raises several important issues for student of international relations and policy makers. First, there is the dilemma of the U.S. working with an authoritarian government; the book examines the utility of this relationship through the lens of U.S. interests in the Middle East.

“Second, it is clear from the book that the Egyptian military has a very limited will to initiate internal reform in exchange for foreign aid. U.S. policy makers need to remember that fact when considering the U.S.-Egypt relationship and what it should look like in the future.”

It appears that economic reforms for Egypt might be a realistic price for U.S. aid. It is in everyone’s interest that Egyptian society does not fall into chaos due to its economic woes, which would leave Egyptians ripe for radical Islamists. As the intellectual hub of the Arab world, Cairo has seen some great intellectual leaders like writers Naguib Mahfouz (a Nobel Prize winner) and Taha Hussein. But Cairo has also seen its jihadists such as Hassan al-Banna or Sayyid Qutb.

The special relationship between the Egyptian army and the U.S. has never translated into political reforms as Witty discussed in his book. However, but it might be enough to bring about some economic changes that are badly needed.

Without these economic reforms in Egypt, we will witness an economic decline that will destabilize one of the biggest societies in the Middle East and North Africa, sending shock waves all over those regions. What happens in Cairo will not stay in Cairo.

Ilan Fuchs

Dr. Ilan Fuchs is a scholar of international law and legal history. He holds a B.A. in Humanities and Social Science from The Open University of Israel and an M.A. in Jewish history from Bar-Ilan University. Ilan’s other degrees include an LL.B., an LL.M. and a Ph.D. in Law from Bar-Ilan University. He is the author of “Jewish Women’s Torah Study: Orthodox Education and Modernity,” and 18 articles in leading scholarly journals. At the University, Ilan teaches courses on international law while maintaining a law practice in several jurisdictions.

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