In Egypt, the government announced economic growth of 9,8% in the second quarter. Yet the Egyptian pound is more vulnerable than ever. The end of the “economic miracle” sold in recent years by the state?
Since the beginning of the 2000s, and even more since Abdel Fattah al-Sisi, Egypt has sold itself as a real "economic miracle" to whoever wants to hear it. And this, thanks to well-crafted communication and positive economic indicators. It must be said that the government can count on a powerful propaganda machine, set up by the Egyptian president and his teams, but above all on the support of the Western media which, relying on the good relations between the West and the dictator Egyptian, today praise of a despotic regime that ignores human rights.
Last October, the Egyptian government boasted an economic growth of 9,8%, against 0,7% a year earlier, for the period July-December. While economists expected the national currency, the Egyptian pound, to fall, the situation had ultimately been positive. The Egyptian pound was, according to official speeches, one of the most stable currencies in the world, especially in times of health crisis. While "most central banks have seen their currencies strongly devalued, to -15%, -20% or -30%," said Egyptian Central Bank Governor Tarek Amer, "we have treated the financial crisis differently."
The miracle would therefore not be one and Egyptian economists would have found a solution to the crisis. By wanting to treat the crisis "differently", it was for Egypt to separate itself from all currency reserves in bonds, in order to avoid, at any cost, that the Egyptian pound is devalued. A strategy aimed at reassuring foreign investors. Most importantly, a strategy that did not work as much as Tarek Amer or his government had hoped.
Treasury bills that make the IMF shudder
Indeed, some foreign investors are becoming cautious about the purchase of treasury bills (BT) in Egypt. The market has become "too nervous," according to Goldman Sachs. Indeed, while the value of the Egyptian pound is now much higher than it was in January 2021, it had reached its lowest value between September 27 and October 4.
Speculative activity, no doubt, but enough to scare away foreign investors, some of whom have decided to sell the equivalent of $ 3,75 billion in BT between October and November. A huge drop, as Egypt had $ 24,1 billion in BT held by foreigners, making the country, according to the IMF, "a favorite among investors in emerging markets".
For specialists, the circulation of the Egyptian pound and purchasing power in Egypt are greatly threatened by the false statements of the government. So, of course, the Egyptian BTs sold reported 13,25% additional gains on average over the year 2021. But these funds, sold by foreigners to foreigners, only earn the State 20% in taxes on income, which is not always collected.
Egypt will not be able to maintain the exchange rate
According to the investment firm Standard Life Aberdeen (abrdn), "the problem is not whether the funds will come out of Egypt, but how Egypt will meet large future financing needs". "The key question is whether they are willing and able to hold the exchange rate, because that's why it's been the most sensational trade for emerging markets - because they've kept the exchange rate stable." and paid extremely high rates on their bonds, ”said Viktor Szabo, portfolio manager at abrdn.
The problem does not end, according to a "half-dozen specialists" interviewed by Reuters, to the imminent implosion and fragility of the Egyptian pound. Egypt's foreign exchange reserves now stand at around $ 114 billion, less than half of last year.
A disaster for the country which relies more and more on foreign funds, which rarely, or never, come from cash or direct investments. And if one wonders where the money is going, President Abdel Fattah al-Sisi can answer. A costly renovation of urban infrastructure, a space program, and the construction of a city in Sinai, with a castle the size of the president's ego, obviously.
Unemployment rates are rising, agriculture and industry for the national market are falling, exported goods are increasing, and so are imports of basic necessities. Is Abdel Fattah al-Sissi's Egyptian “miracle” ultimately just a mirage? With an estimated poverty rate of 29,7%, against 16,7% in 2005, Egypt seems much worse off than it shows.