Egypt

The Egyptian economy has maintained high growth rates despite the difficulties arising from structural imports of food, energy and refined products in a context of high population growth and increased investment (domestic and foreign) in infrastructure and construction. The economy is expected to grow by +3.5% in 2024, following an estimated +2.8–3% in 2023. However, this goes in parallel with very high levels of inflation (+33.7% in December, with food still at +79%) and evident difficulties in maintaining an acceptable buffer of foreign exchange reserves and refinancing debt.

The conflict between Israel and Gaza, which has more than 2mn people gathered in the southern portion of the Gaza Strip that borders Egypt, as well as international pressure to resume the negotiations with the International Monetary Fund (IMF), both had an impact on the early presidential elections that took place in December 2023, several months ahead of schedule. The election confirmed President El-Sisi with nearly 90% of votes, with essentially no contenders and an official turnout of 67%.

Along with currency depreciation, sovereignty remains a hot topic and is probably the main supporting factor for the military-backed government. In recent years, the government has faced popular protests against ceding the two Red Sea islands of Tiran (just 6km from the tourism resort of Sharm El Sheikh) and Sanafir to Saudi Arabia in exchange for some financial assistance. Saudi Arabia finally added them to its country map in September 2023. Any such development involving the Suez Canal remains unlikely as long as the government is solvent. Over the summer, the government privatized several state-run companies whose total value should bring in some USD1.9bn. The buyers have generally been sovereign wealth funds, subject to the diplomatic benevolence of the Arab world (Abu Dhabi, Saudi Arabia). The most desirable assets, such as a company that operates gas stations and one that sells beverages and bottled water, have not been put up for sale yet.

Remittances are likely to decrease significantly, but Egypt’s current account remains close to balance due to shrinking imports. Suez-related revenues increased in recent months, bringing in an additional USD400mn on average per quarter in FY 2022-2023. The increase in transit fees between the end of 2022 and the beginning of 2023 has certainly helped, as has the strategic nature of the Canal. Authorities confirmed the increase in transit revenues to a projected total of USD9.4bn for the full FY, which would mean a +52% increase in Q4 compared to the average of the previous three quarters. Tourism receipts have also increased, thanks to rising prices and the general recovery in tourist flows seen in other countries. Both revenue channels are likely to slow down in the first half of 2024 due to resurging regional conflicts.

Despite the president’s tight control over institutions and the army’s support, the autocratic political system carries a hidden risk of social unrest. Going forward, rising social discontent related to high youth unemployment, low purchasing power and currency depreciation, as well as potential misalignment with other Arab countries over the relationship with Israel and the protection of Palestinians, may trigger revolts and institutional changes. Security risks related to latent conflict in Libya and Sudan also weigh on the downside, as do claims against Ethiopia over the upstream allocation of water from the Nile basin.

If the government manages to keep accessing alternative sources of money on favorable terms, particularly through bilateral aid, it may not need to comply with previous IMF recommendations. If this happens, market reforms that the government would prefer not to implement, such as the privatization of state assets, may be sidestepped.