Egypt’s Economic Crisis Is a Golden Opportunity
With inflation at 21% and the pound in free fall, Egypt has been shut out of international financial markets and forced to seek an IMF bailout. But rather than cutting food and fuel subsidies, the government should use this crisis to root out cronyism and reduce the military’s outsize role in the economy.
WASHINGTON, DC – Egypt is on the brink of a financial and economic abyss. The portfolio inflows that fueled its sovereign debt market have dried up, repeated currency devaluations have driven the Egyptian pound off a cliff, and inflation is at 21%, following the rapid erosion of the country’s foreign-exchange reserves.
After initially recovering from the COVID-19 pandemic, the Egyptian economy has been hit hard by the fallout from the war in Ukraine. As the world’s biggest wheat importer, the country has suffered from supply disruptions and soaring prices, with food and beverage costs increasing by 37.2% over the past year. While the impact of rising oil import costs on Egypt’s external balance has been mitigated by fast-growing exports of natural gas, the surge in energy and food prices has taken a heavy toll on Egypt’s population.
Rising wheat prices, together with the widening external deficit and the falling pound, have put pressure on the country’s food-subsidy program, particularly the bread subsidies on which nearly two-thirds of the population, approximately 60 million people, rely. The pressure on household budgets has fueled an increase in the poverty rate, which now stands at 32.5%, while an estimated 60% of Egyptians are either poor or at risk of falling into poverty.