Rédaction Africa Links 24 with satarbf
Published on 2024-03-08 10:25:39
Like Tunisia, Egypt has been in difficult discussions and negotiations with the IMF for the past 2 years. Just like Tunisia, during these negotiations, Egypt has changed the governor of its central bank and its minister of economy (the negotiators). Like Tunisia, Egypt has seen its democratic transition shatter as it plunges into toxic and unsustainable debt. And it’s not over yet…
What has changed is that Egypt has finally reached an agreement with the IMF, resulting in the collapse of the Egyptian pound, a 40% drop in one day, a 6% interest rate hike on the same day, and a plunge in purchasing power, as if the Egyptians are not already poor and humiliated enough.
A shock treatment
Here is what Tunisia can expect if nothing is done to revive the economy through work, to boost productivity through national mobilization, and not through the mere ideological gestures of politicians and the naive speeches of media fed by dubious money from pressure groups.
Yesterday, Egypt reached an agreement with the International Monetary Fund for an $8 billion loan (6%), just hours after releasing its currency in favor of an uncertain float based on international market speculation.
Before raising interest rates by 6% in one go, in a surprise move to attract foreign investors while its economy is under pressure from the war in Gaza, and while the state is almost in a budgetary impasse.
The Egyptian pound lost about 38% of its value against the US dollar after the announcement of the decision to float the pound, despite the Central Bank of Egypt raising interest rates. The pound was trading at 49 pounds to one US dollar, compared to about 30 the day before.
Incalculable social impacts
It is catastrophic for purchasing power, as all imported products will see their prices skyrocket by at least 40% (medicines, food, technology, fuel, cars, etc.).
The underprivileged will no longer be able to afford to educate their children or provide them with a balanced diet, as indicated by an Egyptian residing in Canada. He adds, “With such devaluation of the pound, the middle class is doomed to disappear, and what builds nations and their prosperity is the middle class…”
The agreement marks a substantial step from the $3 billion loan that the IMF had previously discussed with Cairo, signaling the organization’s willingness to help support the country’s economy.
For a handful of dollars
The IMF’s offer has increased from $3 billion to $8 billion, as if the IMF was sending a subliminal message to Tunisia, which will also have no choice but to come to an agreement with the IMF to get out of its isolation and avoid bankruptcy.
The announcement of the collapse of the Egyptian pound and the successive increases in interest rates were part of a broader effort by the authorities to meet the IMF’s requirements and to hope to attract foreign capital in a context of declining investor confidence and to stabilize a domestic economy in serious trouble as the war in Gaza poses challenges to the Cairo government.
Egypt played a major role in negotiating a ceasefire between Israel and Hamas and sought to prevent a wider spread of the conflict. But its struggling economy faced new pressures.
Hidden transactions
International pressure expected Egypt to welcome 2 million Gazans in exchange for Western aid, at the initiative of Zionist lobbyists from around the world and Bretton Woods institutions.
Burdened by one of the highest levels of external debt in the world, Egypt faced a potential default if it did not start implementing financial reforms that would attract investors and satisfy its international benefactors.
The war sparked diplomatic and political tensions across the Middle East, and its economic impact was felt in Europe and, to a lesser extent, in the United States and Asia.
When Houthi forces in Yemen began targeting ships in the Red Sea in response to the war in Gaza, many maritime operators rerouted their ships, avoiding the Suez Canal and reducing Egypt’s transit fee revenues. Egyptian authorities also face a potential influx of tens of thousands of Palestinians trying to flee the fighting between Israel and Hamas.
Saving the Al Sissi regime
President Abdel Fattah Al Sissi, who was reelected for a third presidential term in December, let the pound plummet dramatically as he sought to stabilize prices and keep political dissent under control, analysts said.
Before Wednesday’s agreement, the pound had lost about half its value since March 2022, pushing inflation to staggering levels and plunging many Egyptian families into poverty.
The Egyptian authorities, however, were under pressure to let the currency float freely to supposedly restore investor confidence.
Vulture funds
Egypt’s richer Gulf neighbors, who had bolstered Egypt’s finances, were reluctant last year to inject more capital into the country without assurances on how the Egyptian pound would trade. Gulf countries are taking advantage of the situation to acquire prestigious territories and assets in Egypt at greatly reduced prices.
The vulture funds from the Gulf countries and elsewhere will make golden deals by getting their hands on state-owned companies and assets at 15-20% of their actual value from 6 to 7 months ago.
IMF discussions with Egypt about a loan have been ongoing for months, with officials pushing for Cairo to let its currency float freely on markets and reopen the door to privatizing large parts of the public sector economy.
With the currency still under pressure and trading much lower in the black market, investors have been expecting the central bank to allow another sharp devaluation for months. However, the announcement of a complete and immediate float – and its timing on Wednesday – was a surprise.
In the short term, the sharp depreciation of the Egyptian pound could exacerbate inflation by making imports more expensive, leading to more difficulties for most Egyptians, although many businesses have taken the decision into account. Inflation dropped to 29.8% in January, after peaking at around 33.8% in December.
The rout was foreseeable
Many Egyptians have cut back on meat, fruits, and vegetables…and some have blamed the authorities for higher prices.
“When the government floats the pound, it hurts us even more,” said Alaa El-Sabea, a father of two young children in Cairo who has skipped meals to save money. “The most important thing is to make sure my children eat.” “We are sacrificed for the sake of international capital…this cannot continue like this…”
In October, the IMF agreed to lend Egypt $3 billion, but delayed incoming tranches amid ongoing discussions on reforms.
The Central Bank of Egypt said its sole aim is to control inflation, which it will aim to keep within a range of 5% to 9%. It raised its overnight deposit rate from 21.25% to 27.25%. “Who can buy a house with these interest rates and who can borrow to cover life’s various unexpected expenses…it’s over, we’re ruined,” comments an Egyptian on Saout El Arab radio!
It’s a nightmare scenario unfolding for the Egyptian people!
We will see if this will generate the instability and protests that President Kais Saied feared when his opposition categorically rejected IMF reforms.
It makes one wonder what will prevent Tunisia from heading towards the same hallucinatory and terrible scenario for our people who are already experiencing shortages and rationing!
Economics for Tunisia, E4T
Read the original article(French) on Tunisie Focus
