Euromoney Interviews Marco Vicenzino

“The U.S. will use its influence on the International Monetary Fund to ensure that Egypt obtains what it needs, and to contain the risks of a debt crisis or currency shock and all that might imply in terms of political instability.”

Marco Vicenzino, Euromoney Country Risk Expert

August 26, 2022

What went wrong in Egypt?

Vicenzino: For Egypt, and many other emerging markets (EM), a perfect storm has been aligning in recent times. Much of Egypt’s current predicament, like other EM, lie in a combination of multiple adverse, and often cross-feeding, factors that are compounding the deteriorating global scenario. 

These include the post-Covid economic fallout internationally and the ensuing disruptions at all levels. For Egypt, there were serious implications for leading income earners such as tourism and textiles. 

Furthermore, the fallout of the Ukraine war has drastically exacerbated the situation, particularly for Egypt’s food imports, and its impact will be felt for a very long time. This conflict will not end anytime soon and learning how to manage the economic implications remains a key challenge for policymakers globally, and primarily for emerging markets like Egypt. One example, is finding innovative ways to boost local food production. 

Will Egypt reach a deal with the International Monetary Fund (IMF)?  

Vicenzino:  A deal will be agreed, despite differences, with the US using its influence on the IMF to ensure that Egypt obtains what it needs, and to contain the risks of a debt crisis or currency shock and all that might imply in terms of political instability.

However, it is important not to exclude the possibility that initial complications may occur if the IMF insists that Egypt loosens its exchange-rate restrictions.

As the third largest recipient of U.S. aid, Egypt plays a critical role in ensuring stability in the Middle East and North Africa. 

With increasing geopolitical insecurity and economic volatility in the region and beyond, the U.S. will do what is needed to help ensure Egypt’s internal stability and avoid episodes such as the January 2011 ouster of the Mubarak regime or the recent ouster of Sri Lanka’s government – scenarios that may increase in emerging markets as the global economic situation further deteriorates. 

Do you believe that Egypt will be able to honor its debt obligations?

Vicenzino: Symbolically, it’s important for Egypt to make a public statement of its intent and commitment to meeting its debt obligations. However, the reality is that the worsening global economic situation is accompanied by further uncertainty and unpredictability. Egypt’s creditors are aware of this and will largely demonstrate the necessary flexibility to adapt to developing circumstances over time.

The bottom line is that for the U.S., and its allies in Europe and the Gulf, Egypt remains too big to fail.  Despite whatever complications arise, ultimately they will do whatever is necessary to ensure that Egypt stays afloat.

How do you see Egypt’s economic fortunes developing?

Vicenzino: At this critical stage, it’s difficult to speak about economic fortunes while attempting to weather a serious storm. In the immediate term, the key objective is achieving a minimum, sufficient level of stabilization by trying to effectively manage the current scenario – which is plagued with increasing geopolitical instability and economic uncertainty. For now, it’s important to ensure that Egypt’s enormous population of over 110 million is provided with the basics – particularly food. The current U.N.-led effort to ensure Ukrainian exports is critical to this process of stabilizing the current global food crisis – particularly for Egypt.