Egypt Caught Between Loyalties to Palestinians and International Debt Pressures

A 2022 IMF loan to the Egyptian government has been increased from 3bn$ to 8bn$, with the disbursement of tranches conditional upon Egypt’s adherence to the IMF’s restructuring plan. The deal seeks to minimize the Egyptian government’s public sector spending and the role of the military in the economic sphere. The Egyptian economy is in crisis, as foreign currency reserves are drastically lower than a year ago and the value of the Egyptian pound has plummeted. The Gaza crisis has also significantly diminished tourism in Egypt, which accounts for 10-15% of the country’s GDP. There have been reports of an Israeli proposed deal to take on a large amount of Egypt’s external debt in exchange for Egypt resettling Palestinian refugees on the Sinai Peninsula. Although the Egyptian government has repeatedly claimed that refugee resettlement is a non-starter, the looming economic crisis in Egypt may force the government’s hand to accept the deal. There is mounting evidence that behind closed doors, the little known deal has already been accepted.

The IMF Mission Chief to Egypt laid out the details of the newly negotiated loan at a press conference in April. She told reporters that the plan “centered on a liberalized foreign exchange system […] a significant tightening of both fiscal and monetary policy […] a reduction in public investment […] and the implementation of reforms that would allow the private sector to become the engine of growth.” Addressing the IMF’s initial reluctance to renegotiate their loan to Egypt, the Mission Chief said “[t]here is no doubt that the recent sizable investment deal in Ras el-Hekma eased near-term external financing pressures.” Here, she is referencing an investment deal between the Emirati sovereign wealth fund ADQ and the Egyptian New Urban Communities Authority (NUCA,) wherein ADQ will pay NUCA 24bn$ in exchange for the rights to develop 40,600 acres of coastal Egypt. The deal reflects the desperation of the Egyptian economy, as Egypt remains responsible for creating the necessary infrastructure to support the proposed tourist destination, which already includes a 4.5bn$ high speed rail line and a 30bn$ nuclear power plant.

While the additional 5bn$ loan to Egypt will shore up its economy in the short term, Egypt is still vulnerable to economic collapse if it does not consider extreme measures soon. An Israeli deal was reportedly offered to the Egyptian government in 2023 that would see Israel take on a significant portion of Egypt’s debt to the World Bank in exchange for the resettlement of Palestinian refugees on the Sinai Peninsula. The Egyptian private sector, namely the Organi group under Ibrahim Al-Arjani, has already begun to exploit the Gazan crisis for profit, charging 5,000$ a head for Palestinians to cross the Egyptian border. Organi-owned construction company Sons of Sinai has begun construction on a project which they claim “is intended to create a high-security gated and isolated area near the borders with the Gaza Strip, in preparation for the reception of Palestinian refugees in the case of (a) mass.” Many fear that this project is confirmation that the Egyptian government will resettle the Palestinians on the Sinai Peninsula via a private entity. 

This would not be the first time in history that Egypt has made trades for debt relief. In 1991, the United States offered to write off 20bn$ of Egypt’s debt if it entered the Gulf War against Saddam Hussein. The Egyptian populace views both the decision to enter the Gulf War and the potential resettlement of Palestinians on the Sinai with contempt. The Egyptian government should not move forward in acquiescence to Israel’s wishes for Palestinian relocation. Egypt should leverage its allyship with Israel and seek a negotiated settlement between the IDF and Hamas. Israel relies on Egypt as an Arab ally, particularly as a buffer against hostile nations such as Libya. Although the Egyptian economy is in dire straits, the resettlement of Palestinian refugees will create more unrest among Egyptians and a negotiated peace settlement will draw tourists back to Egypt. Eventually, Egypt may have to turn for help from countries like China, Russia and India as African nations have increasingly begun to prefer them to Western institutions like the IMF and World Bank. Ultimately, it is betrayal of the Egyptian people for the government to continue selling off beautiful coastlines and entertaining the resettlement of Palestinians on the Sinai, regardless of debt pressures.

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