Paving a Road to Perdition: El-Sisi and the Drivers of Egypt’s Economic Ruin

Author: Colin Powers
Reviewed by: Maha Ben Gadha
Design and layout by: ozads.org

At the time of writing, the Egyptian economy remains mired in a balance of payments crisis. Despite the rescue and reform package agreed to with the International Monetary Fund in December 2022, a sovereign debt default still looks likely—policymakers, in fact, have been secretly planning for such an eventuality since late spring 2023. Trading on futures exchanges and the black market, meanwhile, suggests the Egyptian Pound (EGP) will shed another 30% of its value in the months to come.

This report attempts to answer why and how this all came to pass. On the one hand, it does so through bringing endowments bequeathed by history into conversation with structural restraints imposed by global capitalism. On the other, it homes in on the folly of the El-Sisi regime and the assortment of ways through which Egypt’s leadership has dragged the economy to the abyss.

Concerning structural restraints, paving a Road establishes the extent to which Egypt’s positioning within global systems of production, money, and finance predisposes the country to experience balance of payment strains. Here, the report draws particular attention to effects exerted by value chains and the special privileges they award to the holders of intellectual property. It also highlight effects derived from the international hierarchy of currencies and from global finance’s treatment of Egypt as a space for short-term speculation, principally via the market for EGP-denominated treasuries. Seen together, Paving a Road determines that Egypt’s peripherality within the global economy makes the realization of declining terms of trade, high interest rates, low investment in productive activities, and financial and exchange rate volatility likely though not inevitable. What lifts the probabilities to the degree that all such outcomes have indeed become inevitable, in the author’s estimations, were decades of poorly designed industrial, investment, and trade policies.

As for the folly of the El-Sisi regime, Paving a Road concentrates on debt issuance and the manner with which they were used to both resolve external imbalances and buttress El-Sisi’s control. Through a variety of channels, the report details how debt and public investment were deployed to service the interests of a coalition comprised of internal and external parties. Internally, the armed forces were privileged amongst beneficiaries, though a relatively large swath of the country’s upper middle class—key financiers of the sovereign debt—sat just below them. Externally, the regime’s coalition brought together the states of the GCC, Paris Club members and their national champions, China and Russia, a constellation of multilateral lenders, and, least reliably, the portfolio investors of Wall Street. So long fresh inflows of credit money arrived, the report details how El-Sisi et al were able to keep payments current and relevant constituencies happy. In failing to enhance the economy’s productive capacity, however, and in mortgaging the future at such high interest rates, the author also explains why this debt-lubricated strategy was acutely vulnerable to a shift in global credit conditions. Such a shift came in the winter of 2022 and with it, the implosion of the Egyptian economy. Tragically for Egyptians, the outlook going forward points to the fall-out being devastating and long-lasting.