Why Egypt's Economy is on the Brink of Collapse

this video is brought to you by nebula over the past week or so Egypt has been negotiating what would be president cce's fourth IMF Loan in just the past decade as rising interest payments and reduced revenues from the sus Canal strain public finances to the point of collapse while a loan is apparently forthcoming this is unlikely to provide more than a tempory rest bite not least because well previous IMF loans clearly haven't worked and because the war in Gaza shows little sign of abating so in this video we're going to have a look at Egypt's economic woes how they've been exacerbated by the war in Gaza and what might happen [Music] next before we start if you haven't already please consider subscribing and ringing the bell to stay in the loop and be notified when we release new videos so to understand why Egypt is in so much trouble you need to know a bit about it its long running economic crisis we've actually done a whole video on this before but the tldr is that Egypt's economy has been in a bit of a state for the past few years after a couple of years of political and economic instability after the Arab Spring in late 2013 the Egyptian Army decided they'd had enough and staged a military coup led by General Abdul fata lcce while some elements of Egyptian Society opposed the coup most Egyptians just wanted stability which is why CCE was genuinely really popular in Egypt CCE then organized new elections in 2014 which he originally said he wouldn't be running in but once it became clear there was popular demand for his candidacy he ran for president and won promising stability and growth originally he was pretty successful with substantial financial help from proc CC Gulf allies like Saudi Arabia and the UAE Egypt's growth rate jumped from about 2% in 2013 to stabilized at around 5% from 2015 unfortunately in the last few years CC has pitched Egypt into a dramatic economic crisis the basic issue here is quite simple the Egyptian State spends too much money there are at least three big expenditures worth mentioning first Egypt's bloated Civil Service which employs something like 20% of Egypt's working population across 59 state-owned companies who are often headed up by corrupt Army Loyalists and infamously inefficient the second major expenditure is Egypt's expensive subsidy regime while Egypt significantly reduced its energy subsidy regime from 2014 which had previously accounted for something like 6% of GDP Egypt's food subsidy regime still accounts for about 1.5% of GDP this is risen to something like 2% of GDP in the past 2 years in part due to the fact that Egypt used to import a whole load of its calories notably wheat from Russia and Ukraine via the Black Sea the third expenditure worth mentioning are CC's Mega projects which include a second Suez Canal a massive irrigation project around Lake NASA called toshka and a series of new cities across Egypt including perhaps most notably the new administrative Capital which sits just 45 km east of Cairo and is intended to be Egypt's New Capital City when it's eventually finished unfortunately for cc many of these projects have gone dramatically over budget the first phase of the new administrative capital for instance has come in so far over that its main International backers the United Arab Emirates and China have now both pulled out anyway wary of politically unpalatable spending cuts CC's governments have instead responded by burning through their foreign exchange reserves borrowing lots of money and printing even more unsurprisingly this has Dred drastically weakened the Egyptian pound which has now lost 50% of its value against the dollar in the past 2 years but is trading at half that on the black market so 25% of its pre-pandemic value this has in turn stoked inflation which jumped from 5% to 30% over the course of 2022 and has stayed there ever since unfortunately for Egypt the ongoing war in Gaza has only made things significantly worse for three reasons first in late October Israel decided to shut down the Tamar gas field off the coast of Gaza the Tamar field had been an important source of supply for Egypt with most of the gas consumed domestically but some sold on to Europe as LG and its closure has reduced foreign currency inflows and contributed to the rolling blackouts the Egyptian government was forced to introduce in mid 2023 second the effective closure of the Suz Canal has significantly reduced Egypt's foreign currency inflows for context since declaring war on Israel in October the yemen-based houthis have been attacking both Commercial and Military ships transiting through the Red Sea and the Suz Canal despite strikes on houthi targets from both the US and the UK the attacks have continued and most shipping companies are now saying that they won't Transit through the Red Sea and therefore the Suz Canal this is pretty terrible news for Egypt State finances because significant fraction of its foreign currency comes from tolls on ships passing through the canal in normal times the sus Canal is the main route for maritime trade between Europe and both the middle east and south Asia with over 20,000 ships passing through each year unfortunately for Cairo reduced traffic through the canal means overall revenues have fallen by about 40% despite a recent price hike third while the impact hasn't been as dramatic as many analysts expect the disruption to both oil and Maritime Transit has pushed up inflation especially in the Middle East this has obviously directly exacerbated Egypt's inflationary crisis but it's also encouraged central banks to keep interest rates relatively High internationally this is a real problem for Egypt because its high debt burden means it's now spending a lot of money on interest payments for context Egypt's debt GDP ratio has risen 17 % in Just 2 years going from 80% in June 2022 to 97% today and its interest payments on this debt currently accounts for literally 60% of Egypt's public spending one of the reasons this number is so high is that Egypt issued quite a lot of dollar denominated bonds which have become significantly more expensive to Service as Egypt's currency has weakened Egypt is now apparently in a sort of debt spiral where more borrowing means higher interest payments which Egypt then finances with more borrowing and so on and so on this is one of the reasons why Egypt's debt deficit has ballooned to about 7% of GDP and Egypt is currently negotiating yet another bailout loan from the IMF so what happens next well as we mentioned in the intro IMF loans really haven't worked for Egypt one of the big reasons for this by the way is that the IMF often requires a currency devaluation or the with of subsidies but these only Stoke inflation forcing the Egyptian Central Bank to hike interest rates which increases Egypt's already exorbitant debt servicing costs but while IMF imposed austerity might be tough and perhaps futile the thing cc is clearly most worried about and to be fair the thing Egypt can't really afford given its current fiscal state is a massive influx of Garin into the Sinai Peninsula which is becoming increasingly likely as Israel sets up for a ground invasion of Rafa as a TDR viewer I can pretty confidently say that you're curious about the world around you Keen to know what's really going on rather than just the General Media narrative and one country where this is particularly interesting is China where a lot of media coverage can be muddled or misleading if you want to dive deeper though I'd recommend poly matters incredible series China actually which explores the truth behind the Chinese news examining the truth about China's one child policy why China has no allies how Chinese censorship really works and what exactly China's nuclear policy looks like all in all it's a brilliantly researched and thoughtful series and it's exclusively available on our streaming service nebula as you know nebula is the service 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Channel: TLDR News Global

Views: 398,282

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Length: 9min 52sec (592 seconds)

Published: Mon Feb 19 2024