{"id":2515,"date":"2024-09-25T13:35:00","date_gmt":"2024-09-25T11:35:00","guid":{"rendered":"https:\/\/kraftscharling.dk\/?p=2515"},"modified":"2025-03-13T14:00:14","modified_gmt":"2025-03-13T13:00:14","slug":"egypts-relation","status":"publish","type":"post","link":"https:\/\/kraftscharling.dk\/en\/egyptens-relation\/","title":{"rendered":"Egypts relation"},"content":{"rendered":"

The relationship between Ethiopia and Egypt is becoming increasingly tense. Fundamentally, it revolves around water, the political effects of climate change, and the involvement of superpowers. This relationship is archetypal of many conflicts we are likely to see elsewhere on the globe in the coming years.<\/em><\/p>\n\n\n\n

The following blog post is the third of four parts about the relationship between the two countries.<\/em><\/p>\n\n\n\n

Egypt is facing severe economic problems ...<\/h2>\n\n\n\n

Egypt\u2019s economy is on a disastrous course. The standard of living has dropped to its lowest level in a decade, fueling social unrest.<\/p>\n\n\n\n

Structurally, Egypt\u2019s economy has the same need for climate adaptation investments as most countries in Africa and South Asia. Additionally, Egypt is undertaking some megaprojects, such as the expansion of the Suez Canal, irrigation systems at Lake Nasser, and the New Administrative Capital (NAC) just 40 km from Cairo.<\/p>\n\n\n\n

Egypt\u2019s fiscal policy is therefore highly expansionary. From 2022 to 2023, public debt as a percentage of GDP increased from 88.5% to 95.9%. This was due to rising costs for subsidizing fuel and food imports, but especially due to increasing interest burdens from the national debt. Today, nearly half of government spending goes to servicing the existing debt.<\/p>\n\n\n\n

\u2026 which is partly exacerbated by the country\u2019s currency policy<\/h2>\n\n\n\n

Egypt is thus in a debt spiral, currently worsened by its fixed exchange rate policy for the pound. Each devaluation results in unpredictable losses for a new round of investors, who can rarely hedge their currency exposure. This erodes international investor confidence and raises their return requirements (risk premiums). Since COVID-19, Egypt\u2019s pound has been devalued four times, now at one-third of its value compared to early 2022. Like many other developing countries, Egypt fears hyperinflation from letting the pound float freely. Inflation is already around 35%.<\/p>\n\n\n\n

The economy and foreign reserves were already fragile when the Iranian-backed Houthi movement in Yemen began attacking shipping traffic in the Red Sea with missiles at the end of last year. This forced most Western countries to reroute shipping around the southern tip of Africa instead. Suez Canal revenues are now 65% lower than a year ago. The Suez Canal is Egypt\u2019s primary source of foreign currency.<\/p>\n\n\n\n

As a result, Egypt is under immense pressure. All the megaprojects have significantly exceeded their budgets and require ongoing funding to avoid collapse. This has led the largest international investors, the UAE and China, to withdraw from further financing of these projects.<\/p>\n\n\n\n

Egypten anses dog ofte som “too strategic to fail”, …<\/h2>\n\n\n\n

Since the 1970s, Egypt has been one of the largest recipients of U.S. military and economic aid. Although the country doesn\u2019t have a formal security guarantee, it is unofficially seen as \u201ctoo strategic to fail.\u201d The Suez Canal is a bottleneck for Europe\u2019s and the U.S. East Coast\u2019s trade with India, China, and other regions.<\/p>\n\n\n\n

This gives Egypt significant geopolitical influence. The country has also enhanced its role by often acting as a moderator among Muslim and North African nations. For instance, Israel\u2019s war against Hamas has been aided by Egypt keeping its border with Gaza closed. Similarly, Libya\u2019s government policies (and Turkey\u2019s interests) depend on Egypt not providing excessive support to Khalifa Haftar\u2019s forces in eastern Libya.<\/p>\n\n\n\n

\u2026 and therefore Egypt sought funding from around the world in 2024<\/h2>\n\n\n\n

The drop in revenues from the Suez Canal made it necessary for Egypt to seek funding worldwide. This has averted a state bankruptcy but has come with political conditions that undermine public trust in al-Sisi\u2019s leadership.<\/p>\n\n\n\n