Will Egypt's economic crisis be the end of Sisi?

Egypt’s President Abdel-Fattah el-Sisi is facing mounting economic and political pressures. Far from signalling that salvation is at hand, the International Monetary Fund's (IMF) $3 billion loan announced in mid-December highlighted the challenges ahead and the limited assistance Egypt will receive to meet them. 

The relatively small amount of the loan and stringent conditions attached to it indicate that Egypt’s once fulsome reception at international financial institutions and the OECD countries backing them has been supplanted by distrust and scepticism.

Taking some ten months to negotiate and amounting to only a third of the original request, the IMF loan will add rather than reduce the immediate burdens on Egypt’s political economy.

Its key condition of an almost complete floatation of the currency is now reverberating through the economy. The Egyptian Pound’s collapse in January to an all-time low of 32 to the US dollar helped drive overall inflation to a five-year high of 21%.

"Far from signalling that salvation is at hand, the IMF $3 billion loan announced in mid-December highlighted the challenges ahead and the limited assistance Egypt will receive to meet them"

Further inflation is unavoidable despite the government dramatically hiking interest rates in an effort to suck pounds out of circulation. Restricting access to dollars resulted in a $9 billion backlog of goods at Egypt’s ports, crippling essential sectors of the economy dependent on imports, such as animal feed and pharmaceuticals. 

The heavily indebted government, now spending half its annual budget on debt servicing, relies primarily on local banks for additional loans, thus further drying up domestic credit for investment, especially in the private sector whose investments constitute only 3.5% of GDP, probably the lowest rate among lower middle income countries globally.

Egypt has received four IMF loans since November 2016, but unlike the previous ones, the December 2022 loan was not immediately followed by an inflow of foreign currency. Even Egypt’s Gulf “friends,” whose promised financial support was essential to the IMF’s approval, speculated against the Pound when providing it.

The IMF’s distrust and displeasure with the Sisi regime are reflected in the time taken to provide the loan, the relatively small amount it provided for a country of more than 100 million people, and the tight conditions it came with. 

The IMF Staff Report issued on 10 January included the commitments to privatise wholly or partially state-owned enterprises in various sectors.

It specified that some military-owned enterprises would be privatised and that the military economy as a whole would, along with civilian public enterprises, be subject to various measures intended to create a level playing field upon which private enterprises can compete with those owned by the state.

Now dependent on external bailouts to salvage his mismanaged economy, Sisi faces not only economic pressures associated with the most recent deal, but also whatever tensions the new conditionality imposes on his relationship with the vital military prop of his regime. He also confronts a disconsolate public grumbling increasingly about its plight, accusing the government of bearing responsibility for it.

Previously, Sisi tended to blame the public for its own misfortunes. Egyptians, he said, had too many children, did not work hard enough, and relied too much on public handouts. His recent shift in tone, however, suggests he is aware of growing popular dissatisfaction. 

Recently, Sisi’s speeches combine a defence of increasingly controversial regime policies, combined with professions of sympathy for those struggling with inflation, recognition of the problems, and pledges to alleviate them. 

In his speech at the National Police Academy on 22 January, for example, Sisi asserted that the much-criticised national projects, such as the New Administrative Capital, were not luxuries, but necessities for development. Moreover, he claimed, these expensive projects were not responsible for the poor state of the economy, as that resulted from the pandemic and the Ukrainian war.

Sisi thus appears to be on the back foot, defending his regime’s unpopular policies, offering scapegoats, and pledging in vague terms to help the suffering. His boastful, accusatory tone is gone.

Other spokespersons for the regime hold out hope for economic salvation through new discoveries of gas deposits and dramatic future increases in tourism. 

It is still unclear how Sisi intends to confront the economic and growing political challenges he faces, but there are three likely scenarios.

"Sisi might feel more threatened than he has cared to divulge. The two most dangerous threats he confronts are those posed by his own military and by a popular uprising"

The first, and most likely choice, is to try to muddle through, continuing on the existing course while hoping that favourable external developments, such as an end to the war in Ukraine or a global agreement on debt forgiveness for developing economies, will lift Egypt out of the economic hole into which his regime has dug it. 

As for the government’s commitment to privatise the economy, these can be ignored with few costs. The country’s regulatory environment is so complex and dense that a thorough, effective overhaul, even with the best of intentions, would take years. Purposeful foot-dragging would be hard to detect and correct.

Relatively high profile, if largely meaningless, privatisations of military companies can be trumpeted, such as that projected of the Watan Company, whose lucrative petrol stations have already been sold off to other branches of the military. 

As for public grumbling, it can be tolerated because collective political action will not be. The potent combination of imprisonment, disappearances, electronic surveillance, and other means of repressing opposition has proved its effectiveness. The President has no reason to believe that will change. 

But Sisi might feel more threatened than he has cared to divulge. The two most dangerous threats he confronts are those posed by his own military and by a popular uprising. 

His second option is therefore to defang the military by an act of political jiu-jitsu, using the momentum of the IMF agreement to decrease the military’s collective political power.

After all, he relied upon it himself when expediting Mubarak’s removal and in overthrowing Morsi, so he knows the military’s institutional interest trumps loyalty to a President, even if that President was himself an officer.

He might be tempted therefore to use the IMF deal selectively as a coup-proofing tool, depriving some officers of lucrative positions while rewarding others and dressing these tactical manoeuvres up as strategic privatisation and improved regulation of the military economy.

The military thus has some cause to fear that Sisi will use its own weight in the economy to gain further leverage against it, some of which he has already achieved by bolstering the relative strength of General Intelligence in the political arena and the media.

A third choice would be to try to turn the tables on his international “friends” by playing hardball against them. Thus far, he has let Egypt’s weight in numbers, geopolitical position, and military capacities speak largely for themselves as leverage. 

But he could become more assertive by actually demonstrating those strengths and using them as bargaining chips.

Sisi may allow for more illegal immigration through Egypt to Europe. Egypt’s stance on key regional issues, such as Iran’s power projection into the Arab world, the war in Yemen, or the struggle for influence in Libya or Sudan, could be altered to the disadvantage of the UAE, Saudi Arabia, or Qatar. The conflict with Ethiopia over its construction of the Greater Renaissance Dam might become more militarised.

In short, Egypt could become more menacing to the regional and even global order, thereby laying a claim to more external support. Such blackmail was effectively used by Nasser, so there is precedent. 

Whatever Sisi decides to do to confront the economic and political challenges he currently faces, it is unlikely he will regain the stature and support he enjoyed in the wake of his 2013 coup. Calls for him not to contest next year’s presidential election reflect his domestic political decline, if not his demise.

His equivocal, even slightly pro-Russian, position on the war in Ukraine has not endeared him to Washington or various European capitals. He is, in sum, a man increasingly isolated facing challenges to which he has thus far demonstrated little capacity to respond effectively.

Whether these mortal challenges might induce him to depart from the relatively cautious path he has thus far tread remains to be seen.

Robert Springborg is a Research Fellow of the Italian Institute of International Affairs and an Adjunct Professor at Simon Fraser University. His most recent books are Egypt (2018) and Political Economies of the Middle East and North Africa (2020), both published by Polity Press. He is the editor-in-chief of The Handbook of Contemporary Egypt, published by Routledge in 2021.