Egypt

Information sheet

Insight

Egypt: monthly report October 2023

The restart of the war between Israel and Hamas put Egypt at the center of regional diplomacy this month. Cairo's active and cautious posture has been characterized by the willingness to avoid losing credibility toward the Arab public opinion without jeopardizing its relations with Israel and the West. So, while Hamas's attack in Israel was ongoing, the first statement released by Egypt’s Ministry of Foreign Affairs warned about the risks of escalation. Al-Sisi himself, who had recently announced his presidential candidacy for the next December elections warned against a "perverse cycle of violence" that might undermine the region. As the hours passed, contacts between Cairo and world diplomacies multiplied. Foreign Minister Sameh Shoukry spoke with US secretary of state, Antony Blinken, discussing possible initiatives to stop the violence. In the hours in the aftermath of the attack, Italian Minister of Foreign Affairs, Antonio Tajani, flew to Cairo to meet with Shoukry and expressed his support for de-escalation initiatives, as well as Italy's readiness to open humanitarian corridors for the release of Israeli prisoners. Turkish Foreign Minister Hakan Fidan was also among the first foreign ministers to arrive in the country for a face-to-face meeting with Shoukry. In a press conference following the bilateral meeting, Fidan reiterated Ankara's stance on the ongoing crisis, emphasizing that Turkey would not approve a solution based on the "deportation" (in his own words) of Palestinians to Egypt.

As the war in Gaza escalated, tensions increased at the Rafah crossing, which became one of the most closely watched places by world diplomacies during the month. Egyptian authorities criticized the Israelis for their handling of the crisis at the shared border, especially after Tel Aviv's airstrikes in the area. Subsequently, the management of the crossing came to a standstill, with both Israelis and Egyptians equally opposed to its opening for humanitarian reasons. Only the bilateral meeting between Blinken and Al-Sisi and the following trip of President Joe Biden to Israel have pushed Egypt to change its approach to the crisis. Italy Defense Minister, Guido Crosetto, had also urged the Egyptians to open the Rafah crossing to facilitate the influx of humanitarian aid. Israel and Egypt agreed on a temporary opening of the passage to ensure a "limited" delivery of humanitarian aid, excluding for the moment any transit of refugees leaving the Strip. As of today, about 74 trucks have reached the Gaza Strip. Egyptian authorities are still worried about the possibility of members of the Muslim Brotherhood arriving from Gaza.

To find a diplomatic solution to the conflict, a high-level international summit was held in Cairo. Delegates from Arab countries, EU members, and the African Union have participated together with those from Russia, China, Japan, Canada, the United Kingdom, and the United States. The final statement released by the Egyptian Presidency asked for allowing the access of humanitarian aid to Gaza and invited the conflicting parties to find a "fair and just" solution to the Palestinian issue. However, the meeting also highlighted the divergences between the West and Arab states concerning the condemnation of Hamas and possible solutions to the conflict more broadly. It is also worth mentioning the participation of Prime Minister Madbouly in the third international forum on the Belt and Road Initiative (BRI) (the first one since Cairo's entry accession to BRICS). According to Chinese state-owned broadcaster CCTV, President Xi Jinping reassured the Egyptian prime minister of Beijing's readiness to work with Egypt to stabilize the Middle East.

If the new Palestinian crisis underlined Egypt’s geopolitical relevance, its economic crisis proved its internal criticalities. In an interview with the Emirati newspaper The National, IMF Managing Director Kristalina Georgieva stated that Egypt will continue to lose foreign reserves unless it proceeds with a new devaluation of the pound. In this context, Moody's further downgraded Egypt's bond rating from B3 to Caa1, closer to the “junk bonds” threshold. The downgrade was motivated by doubts about debt sustainability, which Cairo had promised to reduce through a privatization process of state-owned companies that remained very circumscribed up to date. The United Arab Emirates has again come to rescue the Egyptian treasury by signing a "currency swap" agreement to alleviate Cairo’s currency crisis. According to a joint statement by both countries’ central banks, the agreement will allow the exchange of 5 billion Emirati dirhams for 42 billion Egyptian pounds ($1.36 billion).

Despite the many attempts to contain the crisis, Egypt’s economy has continued to slow, with data on the non-oil sector from Standard & Poor's index showing a contraction in supply for the fourth month in a row. Standard & Poor's also downgraded Egypt's rating to B- from B, motivating its choice because of the ongoing currency crisis. The decision puts Cairo’s bond on par with nations such as Bolivia, Angola, and Iraq. It is not surprising that rumors are now spreading about a possible request from Egypt for an increase in the loan agreed by the IMF less than a year ago. Egypt is considering requesting an additional $2 billion loan shifting the aggregate loan to $5 billion instead of the $3 billion agreed in 2022. Any potential increase in the loan would remain linked to the technical review process by the IMF, which has asked Cairo for a substantial reduction in public spending as a guarantee. The review has been postponed twice so far, and for the time being, no decision has been made regarding the loan increase.

Download the October 2023 report