In January 2017, the International Monetary Fund (IMF) published the text of an agreement reached with Egypt in August of the previous year, which received little public attention. Official Egyptian media, including the state-run Al-Ahram newspaper, gave minimal coverage to the deal, while international press largely ignored it, with only a few Gulf publications offering brief commentary. The document titled “Memorandum of Understanding on Economic and Financial Policies” outlines the details of the agreement: the IMF will lend Egypt more than $12 billion over three years, disbursed in six installments, contingent on Egypt implementing deep reforms in exchange rate policy, monetary and fiscal policies, social policies, and the business environment. The IMF may withhold future payments if Egypt fails to meet these conditions, as was the case with Ukraine in 2016.
Egypt’s military-backed government has adopted a firm economic strategy, similar to its approach in eliminating the Muslim Brotherhood from political life. Unlike Hosni Mubarak, who favored half-measures and containment policies, the current administration under President Abdel Fattah el-Sisi seeks to assert control. As Sisi stated during a meeting with editors-in-chief of three state newspapers: “We are correcting the course of Egypt’s economy by taking actions that will lay a solid foundation for the country we want in the coming years.” He added that had the government continued without reform for another one or two years, the situation would have been far worse.
The decision to liberalize the exchange rate, made in November, caused the Egyptian pound to lose nearly half its value overnight, rising from EGP 8.8 to EGP 18 per US dollar. As British economist Chris Jarvis, head of the IMF mission to Egypt, noted: “The depreciation of the pound was slightly more than we anticipated after the float.” Jarvis previously drafted communications for former IMF Managing Director Dominique Strauss-Kahn.
Egypt is expected to receive additional loans totaling $12 billion from the IMF, the World Bank, and other multilateral institutions in the current year. Notably, the United States and most Gulf monarchies — except the United Arab Emirates — did not contribute to this financing, unlike major European capitals. While foreign exchange reserves collected or being collected by the Central Bank may provide temporary relief to the foreign exchange market and protect the Egyptian pound, future disbursements remain conditional on Egypt fulfilling its commitments under the memorandum, and regional security conditions also play a role.
Egyptian consumers have borne the full cost of the currency collapse. December 2016 statistics showed a near 30% increase in the cost of living, and IMF experts do not expect inflation to decline before the second half of the year. Although the government increased financial aid for officially registered poor and disabled citizens, more than 20 million Egyptians — about 35% of the population, according to Hiba El-Lithy — have had to face rising prices without significant government support, aside from symbolic measures targeting a small group of income taxpayers. The pharmaceutical sector also saw a 50% average price increase, yielding to pharmacist strikes and threats from drug manufacturers to halt imports. Fuel prices rose by 35%, though the government still subsidizes them by 44%, with further increases expected to ease pressure on the national budget. Higher education remains the only sector resisting price hikes, except for private universities, as ministry officials hope.
Budget deficit reduction remains a critical challenge. The government aims to reduce the budget deficit from 12.1% of GDP in fiscal year 2015–2016 to 4.7% by 2020–2021, and to lower public debt from 95% to 78% of GDP over the same period. To achieve this, austerity measures include wage cuts, reduced energy and commodity subsidies, and increased taxation. Egypt’s financial history casts doubt on the political will to balance government accounts, especially with 3-month treasury bill interest rates reaching 19%. Even if current governance is more responsible than in the past, the path out of crisis remains narrow. Egypt must generate more foreign currency through exports, tourism, and Suez Canal revenues rather than relying on external loans.
Reducing the current account deficit — between 6% and 7% of GDP — will also be difficult. Trade deficits are expected to remain high until at least 2018–2020. As Pascal Doireau from BNP Paribas noted, price factors are not the main driver of the current account deficit. The tourism sector, which contributed 20% of state revenues in 2010, has suffered due to security concerns, and Suez Canal revenues (9% of state income) are vulnerable to global trade volatility. The energy sector deficit — $3.6 billion in 2016, or 20% of the current account deficit — will likely persist until 2018, when the Zohr and Nile Delta natural gas fields come online.
Trust remains scarce among Egyptians, even within the elite. Following a brief market rebound after the currency float on November 3, Egypt’s stock exchange experienced a “Black Thursday” on January 19, losing over $1 billion in a single session, forcing an early market close. Egypt is the fifth Arab country — alongside Morocco, Tunisia, Jordan, and Iraq — to sign an IMF agreement exceeding $21 billion in 2016, signaling the ongoing economic challenges faced by post-Arab Spring nations.