For Egyptian officials, June should have been a month to celebrate. And yet none of the seeming macroeconomic successes that the government recorded brought much reassurance to the average Egyptian, who has continued to experience currency shortages, an unreliable energy grid, and fears of a resurgent spike in inflation.

On the one hand, net international reserves reached a record high of $46.1 billion at the end of May, rising by more than $5 billion compared to April’s nearly $41.1 billion. The reserves are at their highest level since they hit $45.5 billion in February 2020, at the start of the COVID-19 pandemic, according to Egypt’s Central Bank. Bloomberg reported that the $46.1 billion figure is the highest on record, based on available data.

Meanwhile, urban headline inflation was 28.1% in May, compared with 32.5% the month before. And in June, it slightly dropped again, for the fourth consecutive month, to 27.5%. On an annual basis, core inflation was recorded at 26.6% in June, down from 27.1% in May, and 31.8% in April. This inflation decrease came after months of the inflation rate climbing non-stop, which reflected the effects of the deteriorating local currency against the US dollar and extreme shortages of foreign currency income.

Moreover, by late June, the World Bank announced $700 million in Development Policy Financing (DPF) for the government of Egypt to support the country’s shift toward more private-sector participation, better macroeconomic and fiscal resilience, and a greener growth trajectory. This announcement came on top of an agreement reached with the International Monetary Fund (IMF) to release the third tranche, estimated at $820 million, of an overall $8 billion loan program. The IMF announced its board would meet on July 27 to approve the third tranche. That decision was expected a few weeks earlier, but local media reported it had been delayed until the government agrees to yet another increase in electricity and fuel prices. The government has reportedly delayed those moves out of fear of a popular backlash following a recent wave of power cuts and price hikes to subsidized bread.

UAE, IMF rescue

Since March, after the United Arab Emirates and the IMF rescued the Egyptian economy from bankruptcy as war continued to rage between Israel and Hamas in the bordering Gaza Strip, a total of over $57 billion has been pledged to help Egypt survive economically amid extremely difficult local and regional conditions. The most generous support came from Egyptian President Abdel-Fattah el-Sisi’s closest regional ally, UAE President Mohamed bin Zayed, who promised $35 billion to develop a tourist attraction at Ras el-Hekma, along the country’s northern coast overlooking the Mediterranean. The unprecedented amount of cash paid in advance indicated that the UAE’s decision to provide support to Egypt was not purely for business reasons but was also a political decision to save a close ally from declaring default.

No good news yet for hard-hit Egyptians

However, despite all this good news, the vast majority of Egyptians continue to feel the hard crunch of increasing prices and, worse, fear that despite all the new money coming in, the situation might return to the point of near bankruptcy, which was widely feared before vital UAE and IMF support.

The key reason for this pessimistic view is soaring external debt, reaching $168 billion in December 2023, up from $164.5 billion in September. And that figure does not even take into account unknown so-called “hidden debts,” which government-backed entities signed with foreign creditors “outside the budget” in order to fund lavish infrastructure projects that have become the trademark of Sisi’s past decade of rule.

After paying $29.23 billion in external debt service in 2024, with $14.59 billion due in the first half of the year and $14.63 billion in the second half — as well as arrears to foreign oil companies and a long backlog to release goods held in ports for months because of a lack of hard currency — it is reasonable to fear that the $57 billion expected to flow into Egypt’s coffers before the end of this year will soon dry up. This would put additional pressure on the fragile economy and lead to another cycle of devaluation of the local currency as well as a search for new loans.

Volatile regional conditions — first and foremost the raging war in Gaza over the past nine months — have also badly hit the Egyptian economy, causing a drop in tourism to the country and, more importantly, a sharp (up to 64.3%) decrease of Suez Canal revenues due to the Yemeni Houthis’ attacks on ships in the Red Sea. The effects of the ongoing Gaza war are likely to last for a long time, along with the civil war in Sudan that has pushed hundreds of thousands of Sudanese refugees toward their northern neighbor, Egypt.

Hot money on, electricity off

As much as the month of June brought “good news” to government officials, it also justified the worries of most Egyptians that the continuing inflow of cash — including $20 billion in so-called “hot money” that returned to the country after the devaluation of the local currency and raised interest rates by 600 points in March — would not necessarily end the suffering they have been living through over the past four years.

Due to the fear that what has been pledged recently would hardly be enough to cover immediate needs in the coming year or two, Egyptians were angered by a sudden government announcement on June 25 that it would extend daily electricity cuts all over the country from two to four hours. After a public outcry, Egyptian Prime Minister Mustafa Madbouly quickly declared that the power cuts would be reduced to three hours only. In a news conference on June 26, he also pledged that the entire crisis would be over by the third week of July, after managing to provide $1 billion for emergency natural gas shipments to feed electricity-generating stations. The government also promised to restore gas supplies to several large fertilizer companies that were forced to stop production for several days after power cuts.

Clearly, the government was short of cash to import gas and petroleum products needed to fuel the power stations and lessen the population’s suffering in an exceptionally hot summer season that has only just begun. But for Egyptians, the even bigger irony was that the deterioration of the national electricity grid came after widespread propaganda by the government in recent years showcasing the country’s “outstanding achievements” in gas and electricity production. Authorities boasted that these advancements would turn Egypt into a natural gas hub and a net exporter of both gas and electricity.

These expectations did not materialize; instead, Egypt has become a net importer of gas coming mainly from Israel. In his press conference on June 26, Madbouly explained the sharp fall in domestic electricity production by blaming a “technical problem in a gas field of a neighboring country” that exports to Egypt. The “nearby country” Madbouly referred to was Israel, which he clearly avoided mentioning by name out of fear of fueling public anger over Israel’s ongoing war against Palestinians in Gaza.

No worse time

The electricity cuts could not have come at a worse time for Egypt’s government, as they coincided with final high school exams. The percentages Egyptian students score on these tests largely determine their future careers and the university departments they will be able to matriculate into.

Mosques, churches, and public libraries have all declared that they would welcome students trying to study for their final exams during lengthy electricity blackouts, especially outside Cairo. Residents of the capital can draw the authorities’ attention to issues by complaining, while those in rural and upper Egypt have much less of a voice to raise such complaints. Social media posts have noted that in rural and upper Egypt, power cuts far exceed the three or four hours known in the capital and can last up to six or even ten hours at a time.

“The money that came in over the past three months was a life saver, no doubt,” a former Egyptian government official, who previously held an economic portfolio and asked to remain anonymous, told this author. “Yet it is definitely not enough to calm fears on the future of the economy or give us a sense that we are embarking upon a fresh start,” this individual noted, referring to chronic problems such as dependence on imports of many basic commodities, including wheat, machinery, and now gas and oil products.

Inflation slowdown not likely to last

Meanwhile, despite government figures showing inflation coming down in recent months, there are many reasons to expect that it will start rising again when the authorities mandate a fresh round of electricity and fuel price hikes.

The government has been justifying these repeated increases in energy prices by pointing to the soaring cost of imports following the devaluation of the local currency. While $1 traded for 15.7 Egyptian pounds until March 2022, the exchange rate went up to 30 pounds after Egypt’s first round of currency devaluation upon reaching an agreement with the IMF to receive a $3 billion loan. When the situation deteriorated further, following the outbreak of the war in Gaza, the government reached a new agreement with the IMF, expanding the loan to $8 billion and agreeing to a second round of devaluation that resulted in $1 trading for 47-50 Egyptian pounds.

Such blows to the local currency only added to the burden of the Egyptian government’s import bill and further aggravated the economic situation of the more than 100 million Egyptians who already could barely make ends meet. The negligible increases to their low salaries could never keep up with the sharp price spikes caused by the devaluation of the pound.

“The large amounts of money we have been receiving certainly look good on paper and might convince international financial agencies to improve our [credit] ratings,” according to the afore-cited former government official. “Yet they definitely do not mean much for average citizens, who continue to suffer as they see the purchasing power of their incomes falling by the day due to increasing prices,” he added.

 

Khaled Dawoud is the managing editor of Al-Ahram Weekly and former president of the social-liberal Dostour Party.

Photographer: Islam Safwat/Bloomberg via Getty Images