For Egypt, and many other emerging markets (EM), a perfect storm has been aligning in recent times. Much of the current predicament lies in a combination of multiple adverse factors that are compounding the deteriorating global scenario.
These include the post-Covid economic impact internationally and the continuing disruptions at all levels. For Egypt, there were serious implications for leading income earners such as tourism and textiles.
Furthermore, the impact of the Ukraine war has drastically exacerbated the situation, particularly for Egypt’s food imports, and The implications will be felt for a very long time.
This conflict will not end anytime soon and learning how to manage the economic consequences remains a key challenge for policymakers globally, and primarily for emerging markets like Egypt. One example, is finding innovative ways to boost local food production.
Egypt and the International Monetary Fund (IMF) are likely to reach an agreement eventually – despite differences – while the US will use its influence on the IMF to ensure that Egypt obtains what it needs, and to contain the risks of a debt crisis or currency shock and all that might imply in terms of political instability.
However, it is important not to exclude the possibility that initial complications may occur if the IMF insists that Egypt loosens its exchange-rate restrictions.
As the third largest recipient of US aid, Egypt plays a critical role in ensuring stability in the Middle East and North Africa.
With increasing geopolitical insecurity and economic volatility in the region and beyond, the US will do what is needed to help ensure Egypt’s internal stability and avoid episodes such as the January 2011 ouster of the Mubarak regime or the recent ouster of Sri Lanka’s government – scenarios that may increase in emerging markets as the global economic situation further deteriorates.
Throughout these challenging times, it is important for Egypt to make a public statements of its intent and commitment to honoring its debt obligations. However, the reality is that the worsening global economic situation will be accompanied by further uncertainty and unpredictability.
Egypt’s creditors are aware of this and will largely demonstrate the necessary flexibility to adapt to developing circumstances over time.
The bottom line is that for the US, and its allies in Europe and the Gulf, Egypt remains too big to fail. Despite whatever complications arise, ultimately they will do whatever is necessary to ensure that Egypt stays afloat.
In the immediate term, the key objective is achieving a minimum, sufficient level of stabilization by trying to effectively manage the current scenario – which is plagued with increasing geopolitical instability and economic uncertainty.
For now, it’s important to ensure that Egypt’s enormous population of over 110 million is provided with the basics – particularly food. The current UN-led effort to ensure Ukrainian exports is critical to this process of stabilizing the current global food crisis – particularly for Egypt.
Marco Vicenzino is director of Global Strategy Project, a geopolitical risk and international business advisory firm.