The Egyptian pound’s precipitous decline, a staggering 50 percent depreciation against the dollar since March 2022, is proof of an economy teetering on the brink.
The question arises: can BRICS be the beacon of hope that Egypt desperately needs?
Egypt’s recent inclusion in the BRICS alliance marks an important chapter in its economic journey. The decision, laden with promises of diversification, economic rejuvenation, and enhanced global standing, has sparked a vigorous debate within the nation. With the government-aligned media touting BRICS membership as a panacea for Egypt’s economic woes and opposition voices dismissing it as a futile pursuit amidst a backdrop of substantial challenges, the question arises: Could joining the BRICS truly cure Egypt’s economic ills?
Before we dive into the impact of joining BRICS, let’s understand the serious issues Egypt is facing. The Egyptian pound’s precipitous decline, a staggering 50 per cent depreciation against the dollar since March 2022, is proof of an economy teetering on the brink. A burgeoning external debt, comprising 40 per cent of the budget dedicated to debt servicing, further tightens the noose. The urgency for a $3 billion IMF loan, stalled due to the government’s reluctance to enact necessary reforms, shows the precariousness of Egypt’s fiscal position.
BRICS: Beacon of hope or mirage?
Enter BRICS – a coalition initially comprising Brazil, Russia, India, China, and South Africa, now expanded to include Egypt, Iran, Saudi Arabia, Ethiopia, and the UAE.
For Egypt, joining BRICS isn’t just about expanding an alliance; its membership is strategically viewed as a means to diversify partnerships and institutional commitments. The alliance also provides Egypt with a platform to assert its presence internationally.
It is also a strategic move to navigate around the challenges posed by the strength of the US dollar and elevated interest rates. These factors have driven up the cost of imports for Egypt, compelling it to seek alternative lending streams free from Western-imposed conditions.
Moreover, Egypt’s intention to conduct transactions with China, India, and Russia in their respective currencies is a move that aligns with the group’s agenda of reducing reliance on the US dollar.
Last year, even Egypt’s Finance Minister Mohamed Maait stated that BRICS membership would attract investment and export opportunities denominated in local currencies, providing a much-needed boost to its struggling economy.
Although BRICS may not offer immediate solutions, but the New Development Bank (NDB) within the alliance has set up a $100 billion currency reserve pool for its members. The NDB aims to facilitate 30 per cent of lending in local currencies by 2026, presenting a potential avenue for Egypt to diversify its financial channels and reduce dependence on Western-centric financial system.
Geopolitical implications of joining BRICS
While economic considerations are pivotal, geopolitical connotations cannot be overlooked either. As Egypt is diversifying its military deals and making new friends, like Russia, joining BRICS seems to be part of a larger strategy to recalibrate its foreign relations.
In October 2018, the Russian and Egyptian Presidents, President Vladimir Putin and President Abdel Fattah el-Sisi, signed a comprehensive partnership agreement. This agreement encompasses various facets of cooperation, including military, security, trade, and economic aspects.
Trade with other BRICS nations is expected to maintain its current pace, with Russia serving as a key supplier of grain imports to Egypt. Moscow’s central bank included the Egyptian pound in its roster of exchange currencies in January, 2023.
Due to its economic woes, Egypt’s role as a regional power broker has faced challenges, with neighbouring Sudan embroiled in a civil war. The absence of Egypt’s leadership in this conflict, contrasted with Saudi Arabia’s pivotal role, raised questions about Egypt’s regional influence.
Therefore, within BRICS, Egypt is likely to turn to Saudi Arabia for financial support. While Cairo has borrowed from Riyadh in the past, recent signals from the Saudi government indicate a shift towards attaching conditions, such as reforms, to financial aid.
Within BRICS, Egypt’s long-standing dispute with Ethiopia over the Grand Ethiopian Renaissance Dam could find resolution. The addition of both nations to the bloc might pave the way for diplomatic breakthroughs, as talks resume after a two-year deadlock.
