Egypt
Since 2016, Egypt has entered into four loan programmes with the IMF and is currently (2024) its second-largest borrower after Argentina. In the ten years since Egypt’s president El Sisi came to power, eight of which under an IMF programme, external debt has ballooned from $46.1 billion to $168 billion. In this period, GDP has shrunk, the official exchange rate collapsed, inflation soared, labour force participation dropped, and large swathes of the population remain in or are falling into poverty.
Credit: Mídia NINJA, license CC BY-NC 2.0
Several MENA countries have seen large-scale protests against IMF-advised and -imposed policies, including Tunisia and Jordan, forcing the government to backtrack on hugely unpopular austerity measures such as eliminating energy subsidies and rising fuel prices, and at times even resigning. In 2019, Tunisia’s Truth and Reconciliation Commission went so far as to demand financial compensation and debt cancellation for harms caused by the IMF and World Bank since the 1970s. However, protests and effective pushback have been more muted in Egypt, reflecting the increasingly limited civic space, retaliation and security threats that civil society has been facing there in recent years, diminishing activists’ ability to safely engage in the political debate.
In Egypt, “the elimination of energy subsidies, a greenwashing strategy and fiscal policies that have failed to reduce inflation reflect a class war against the poor”, according to Osama Diab (Arab Reform Initiative). Most fiscal savings under the subsequent programmes (about 5.4% of GDP between 2014 and 2021) were achieved through eliminating Egypt’s energy subsidies, which until then had accounted for about 6% of GDP and constituted a form of social assistance. As is frequently the case, the elimination of these subsidies was justified both on equity and climate grounds. However, while in absolute terms, wealthier households do tend to use more energy, energy expenditure represented a greater share of poor household’s income – in Egypt, the rise in energy costs contributed about 40% of the overall living cost increase between 2015 and 2019, representing 35.7% of the expenditure increase for extremely poor households and 31% for the poor, vs. 21.5% for the top decile.
Moreover, only 0.07% points of the 5.4% in GDP savings from subsidy elimination went to social insurance pensions (totalling 0.3% of GDP in 2023). The simultaneous 15.2% increase of the maximum allowance under the conditional cash transfer programme Takaful (which already reached only about half the eligible poor) was grossly insufficient to compensate for the 81% cumulative inflation rate for the extremely poor during that period – inflation that was partially caused by higher prices from the subsidy removal, VAT increases, and currency devaluation. Between 2015 and 2019, food prices increased by 103%. This inflation was then met with significant Fund-prescribed interest rate raises, as a result of which most GDP savings went to higher debt interest rate payments, which have risen from 8% of GDP in 2013 to 10% in 2023 – equivalent to 80% of tax revenue and 40% of government expenditure.
As a result, IMF policies in Egypt not only didn’t properly compensate for subsidy removal but failed even on their own terms – they achieved neither meaningful budget savings and a lowering of the debt-to-GDP ratio nor inflation control but instead accelerated regressive inflation and ballooning debt service. Egyptian civil society groups have documented additional impacts of these measures on health, education, gender equality, access to decent work, social security and housing.
More, energy-intensive sectors such as mining and construction seem to have expanded rather than shrunk since the subsidy elimination – and concurrent energy sector liberalisation – and the oil and gas industry attracted three quarters of FDI in Egypt in 2022, refuting the IMF’s vision that efficient carbon pricing will automatically lead to an adjustment of energy use and emissions. These developments demonstrate that without a concerted push for renewable development in parallel, including concessional and grants finance, developing countries may just be stuck with high fuel prices and unabated fossil investments.
Meanwhile, the heavy external borrowing – which even if not all IMF loans, is still enabled by the Fund’s classification of ‘debt sustainability’ – has been pumped into consolidating Al Sisi’s power, military spending and other vanity projects. Human rights groups have extensively documented the violent crackdown on basic civil rights, dissent, and the state’s independent institutions while entrenching the military’s political and economic power. For Timothy Kaldas (Tahrir Institute for Middle East Policy), the country’s deep and persistent crisis is at the core about the economic malpractice of its leadership, which has been facilitated by financial backers like the IMF that turn a blind eye to the political economy of quasi dictatorial regimes like this: “Large loans to Egypt were attached to reform programs that not only failed to address the political context, but actually added to the deterioration of many of the areas they wanted to see improve, all while enriching and empowering Egypt’s rulers.”
Thus, the IMF’s history in Egypt has become a stark example for many of the problematic dynamics that mar IMF lending: A lack of comprehension of political context and the implicit propping up of autocratic rulers, the fuelling of a debt crisis and reckless lending, the further impoverishment of the population through austerity measures (and endangering of their lives should they dare to protest), the narrow-minded pursuit of a supposedly “green” policy without offering meaningful alternatives, and the implementation of vastly insufficient “mitigation measures”.