An escalating financial crisis, an increase in the prices of goods and services, a decline in the value of the local currency, a deficit in the public budget, and discussions with international bodies to save “what can be saved”, thus escalated the pace of the economic crisis in Egypt and Tunisia, prompting institutions to sound the alarm and warn of a “similar fate.” What happened to Sri Lanka.
A report by the Financial Times predicted, “Several developing countries will face a fate similar to what happened in Sri Lanka due to economic problems and accumulated debts.”
The newspaper pointed out that the list of countries that appear at risk is long and varied, and includes more than 20 emerging market countries that are heavily indebted and find themselves forced to choose between paying creditors or providing food and fuel for their people.
According to the newspaper, Egypt and Tunisia are among those countries where they are facing a severe economic crisis and are holding talks with the International Monetary Fund to save their economy.” Could the Sri Lankan scenario be repeated in these countries?
Sri Lanka is currently negotiating with the International Monetary Fund to approve a possible rescue plan, but the process could take months.
Sri Lanka almost consumed its scarce supplies, mainly of petroleum. The government ordered the closure of non-essential offices and schools to reduce traffic and save fuel.
Inflation in July reached 60.8%, hitting a record rate for the 10th consecutive month, according to data from the Colombo Consumer Price Index published on Friday, while the Sri Lankan rupee has lost more than half its value against the US dollar this year.
The crisis culminated on July 9, when tens of thousands of demonstrators stormed the presidential palace, forcing President Rajapaksa to flee to Singapore, and then step down.
The new president, Ranil Wickremesinghe, declared a state of emergency giving the armed forces sweeping powers and allowing police to detain suspects for a long period of time without charge.
The economist, Abdel Nabi Abdel Muttalib, says that the report presented the “pessimistic view of the International Monetary Fund,” and continues: “The newspaper set its expectations on the basis of Egypt’s commitments, which amount to $20 billion until the end of December 2022, and expectations that the Tunisian debt will rise to about $39 billion during the same year. without examining the strengths of the two countries’ economies.
In an interview with Al-Hurra, he said that “despite the seriousness of these indicators from an economic point of view, they did not take into account the value of the monetary reserves of Egypt and Tunisia, which is still high according to the measures of import coverage.”
But the language of numbers indicates the economic suffering of Egypt and Tunisia, as a result of several factors. Can they face the “escalating economic challenges”?
Unprecedented economic challenges in Egypt
During the past period, Cairo is facing unprecedented economic and political challenges, which have awakened old fears of political turmoil in the country, according to a report by the Wall Street Journal.
Egypt needs to make “decisive progress” in financial and structural reform as Cairo seeks a new round of support from the fund, according to a statement by the International Monetary Fund on Tuesday.
In an assessment of a $5.2 billion reserve arrangement agreed with Egypt in 2020, the Executive Board of the International Monetary Fund cited “high public debt and large overall financing requirements,” according to Bloomberg.
For the first time since 2013, Moody’s Investors Service lowered its outlook for Egypt from stable to negative, warning that “the country remains at risk.”
Moody’s estimated that the size of the Egyptian debt as a percentage of GDP may reach 93.5 percent in the 2022 fiscal year.
10 factors that save the Egyptian economy
Abu Bakr Al-Deeb, advisor to the Arab Center for Studies and researcher in political economy and international relations, ruled out that Egypt will pass a scenario similar to what happened in Sri Lanka, due to 10 factors.
Speaking to Al-Hurra website, he described Cairo as a major African and Arab economic force, as a result of “the success of the economic reform program launched by the government in 2016, as well as maximizing spending on health and education, and strengthening the social protection umbrella.”
He pointed to Cairo’s success in “raising the efficiency of the state’s public finances, maintaining a safe economic path, and accelerating digital transformation, as well as the strong support and support from Gulf countries such as Saudi Arabia and the UAE.”
El-Deeb explained that “Egypt is able to meet its obligations and pay its debts on a regular basis,” noting that the value of the external debts owed by Egypt is not a cause for concern, and most of them are long and medium-term foreign debts.
Egypt’s economy is characterized by diversity, and it has constant income, including 30 billion dollars annually from Egyptian labor transfers abroad, and 7 billion dollars from Suez Canal revenues, as well as tourism and investment, according to Al-Deeb.
According to El-Deeb, Egypt achieved the highest volume of exports in its history to reach $45.2 billion in 2021, of which $32.340 billion are non-oil exports, and $12.9 billion are petroleum exports, and it has a plan to cross the $100 billion barrier for exports.
An escalating crisis in Tunisia
Tunisia is facing an escalating economic crisis, which has caused a rise in the prices of goods and services, due to the repercussions of the Corona pandemic and the effects of the Russian invasion of Ukraine, according to “Reuters”.
The Governor of the Central Bank of Tunisia, Marouane Abbasi, expected the budget deficit to widen to 9.7 percent of GDP this year, compared to 6.7 percent the previous year.
This is due to the appreciation of the dollar and the sharp rise in grain and energy prices, the indirect effects of the Ukraine war, which Abbasi said generated an additional $1.6 billion in financing needs, according to “Reuters”.
As of 2020, the country’s public debt was 70 percent higher than GDP, and current debt levels may be much higher, according to the World Bank.
In the absence of a strong and well-regulated private sector, Tunisians have long relied on the state as a provider of subsidized jobs and goods and services, leading to unsustainable economic disruption, according to the World Bank.
The dual economic and democratic crisis is pushing Tunisia to the edge of the abyss, according to a report by the United States Institute of Peace.
Not Sri Lanka
But the Tunisian journalist writer, Mohamed Bouaoud, rules out that scenario, stressing that “Tunisia will not suffer a similar fate to Sri Lanka,” for several reasons.
In an interview with Al-Hurra, Bouad believes that the Financial Times report miscalculated about the situation in Tunisia, because it relied on it being a “poor country” only.
He spoke with promises about the “difference in circumstances, capabilities and location” between the two countries, noting that “Tunisia lies in the midst of an ocean of friends, partners and neighbors who are able to alleviate the economic crisis.”
Tunisia has a balance of trust with international donor institutions, unlike Sri Lanka, which has just emerged from a civil war and whose wealth is limited to tourism, according to Proud.
In a related context, Abd al-Nabi Abd al-Muttalib refers to “the increase in the Tunisian cash reserve from about seven billion dollars to eight billion dollars during the current year.”
Abdel Nabi spoke about “expectations that the value of Tunisians’ remittances abroad will reach about 10 billion dollars,” referring to Tunisia’s ability to overcome the repercussions of the economic crisis.
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