In the run-up to Egypt's Dec. 10-12 presidential election, financially strapped people queue at state-managed cooperatives trying to buy scarce rations of subsidised sugar.
It is the latest sign of economic pressures that have risen sharply since early last year, leaving Egyptians grappling with soaring prices and an unresolved foreign currency crunch, and overshadowing pledges to push through delayed reforms.
Despite the economic woes, President Abdel Fattah al-Sisi is expected to cruise to a third term, with credible opposition movements sidelined or crushed and the Arab world's most populous country distracted by the war in neighbouring Gaza.
But once the vote is over, analysts will be watching closely for austerity measures they believe were postponed for the elections and could start to put Egypt's finances back in order.
That will be a steep challenge.
Disbursements in a $3 billion financial support package from the International Monetary Fund signed in December 2022 were halted after Egypt fell behind on its pledge to adopt a flexible exchange rate, as well as pull the state and the military back from their dominant position in the economy.
In the last few months, an already weakened currency has plunged to about 50 pounds to the dollar on the black market compared to the official rate of 31 pounds. Debt repayments due in 2024 stand at an all-time high of at least $42.26 billion, according to central bank data.
Keen to avoid unrest at a time of election tensions, the cabinet announced in October it had agreed with private producers and retailers to cut prices on staple foods, including sugar, by 15-25% after inflation soared to a record high.
But the effort met with scant success. Within weeks the retail sugar price jumped to 55 Egyptian pounds ($1.78) from about 35 pounds in early October.
"Prices are so, so expensive - for people with money and people without," said Tamer Ahmed, a 46-year-old vegetable peddler outside a cooperative where the government sells subsidised products.
"We wait for the cooperative to provide sugar, where a kilo is 27 pounds. At the supermarket, you can get it, but for 50, or 55 pounds." At the supermarket, he added, "we don't say we'll take a kilo. We say we'll take half a kilo. Or 5 pounds worth."
BURGEONING DEBT BILL
Priced out of global debt markets, the government has financed a widening deficit by expanding domestic borrowing at a time when interest rates have been surging both domestically and abroad, leading to even bigger deficits.
Outstanding treasury bills and bonds surged to 5.04 trillion pounds as of end-October 2023 from 4.35 trillion a year earlier, with maturities shortening.
The average yield on a one-year T-bill climbed to 26.80% at an auction on Nov. 30 from 18.65% a year earlier.
The interest bill on Egypt's domestic and foreign debt more than doubled in the July-to-September quarter from a year earlier, according to finance ministry data.
"Without IMF funding – and ideally an augmented amount, if not more pledges of linked funding from the Gulf – a debt crisis will eventually be inevitable," said Patrick Curran at research group Tellimer. "And without a devaluation, I don't see how they get the programme back on track."
The three major rating agencies, Moody's, S&P and Fitch, all recently downgraded Egypt's sovereign debt further into junk territory.
In its Oct. 20 downgrade, S&P said it believed the election, scheduled earlier than originally expected, could create political space for economic reforms including a currency devaluation to near the parallel market rate.
Fitch, in a Nov. 3 downgrade, said it expected privatisation to accelerate, costly mega infrastructure projects to slow down, and the currency to be adjusted after the election, likely paving the way for a new and bigger IMF package.
But any devaluation could edge inflation back up.
"We'll be hovering at 34-35% until the end of the year, and starting the first quarter we are headed back to the 40% range because of the devaluation and its pass-through impacts," Allen Sandeep of Naeem Brokerage predicted.
The war in Gaza has brought statements of solidarity for Egypt from Gulf and Western allies, but no promises of the kind of financial support they provided in the past.
There are also new risks. A temporary, security-related suspension of natural gas exports by Israel in October forced Egypt to expand rolling power cuts across the country to two hours a day from one hour previously.
Farouk Soussa of Goldman Sachs cautioned that austerity was not a foregone conclusion since Egypt's cost-of-living crisis would make reform difficult even after the vote.
"The barrier to reform, particularly foreign exchange reform, will be as high in January as it is today," he said.
($1 = 30.8500 Egyptian pounds)
