The Pharaoh’s Empty Treasury

Steven Cook worries that Egypt is dangerously close to defaulting on its debt:

This might sound surprising to the casual observer of Egypt.  The economy was a subject of intense coverage in the months preceding the July 3, 2013 coup, but has receded from view as Saudi Arabia, the United Arab Emirates, and Kuwait stepped in with an initial $12 billion infusion of aid that was followed recently with another $8 billion.  The money from the Gulfies was supposed to stabilize the Egyptian economy, but the numbers do not lie.  The country’s foreign currency reserves—between $16-$17 billion—are close to where they were in late 2012 and the first half of 2013, which means Egypt is hovering just above the critical minimum threshold defined as three months of reserves to purchase critical goods.  A portion of those reserves are not liquid and with a burn rate estimated to be $1.5 billion per month, it is easy to understand why Egypt is one exogenous shock—think Ukraine, which is a major producer of wheat and Egypt is the world’s largest importer of it—or political crisis away from default.

What this would mean:

An economic problem the magnitude of a solvency crisis will only intensify the pathologies that Egypt is already experiencing—violence, political tumult, and general uncertainty.  Economic decline would create a debilitating feedback loop of more political instability, violence, and further economic deterioration. It’s a scary scenario that deserves attention and preparedness, but there does not seem to be much urgency to try to address it anywhere.  Gulf money appears to have lulled people into the sense that the Saudis, Emiratis, and Kuwaitis will stave off disaster.  It’s a false sense of security.