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Will BRICS throw a lifeline to dollar-strapped Egypt?

Economists believe BRICS membership will give Egypt a chance to ease pressure on the dollar, but is not a quick remedy for the country’s economic woes
Flags of (L to R) South Africa, Brazil, Russia, India and China during the 2023 BRICS Summit at the Sandton Convention Centre, Johannesburg, August 24, 2023.

Egypt will become a full member of the BRICS club of emerging economies as of January 2024. The group had approved Cairo’s request to join the bloc during its summit in Johannesburg last week.

The current BRICS nations — Brazil, Russia, India, China and South Africa — also invited Argentina, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates to join the bloc.

Egyptian President Abdel Fattah al-Sisi immediately welcomed the invitation extended to Egypt. “We look forward to cooperating and coordinating with them, and with the other countries invited to join the bloc, to achieve its goals toward strengthening economic cooperation among us and raise the voice of the Global South,” he said in a statement.

Initiated by Russia, the BRICS bloc held its first full summit in 2009 with the goal of providing a platform for member states to challenge the current US-dominated world order. The bloc’s member states collectively account for more than 40% of the world's population and more than 31% of global gross domestic product, according to the CIA's World Factbook.

Cairo has pinned high hopes on its BRICS membership to attract new foreign investment to ease its ongoing economic crisis, exacerbated by Russia's invasion of Ukraine last year.

Egypt continues to struggle with a shortage of hard currency that has snowballed since the start of this year amid skyrocketing inflation, which hit 38.2% in July.

The crisis has caused the Egyptian pound to lose nearly 50% of its value against the dollar since March 2022 in a series of steep devaluations. The dollar shortage also made it harder for the government to repay its debts, prompting it to seek assistance from the International Monetary Fund (IMF) in the form of a $3 billion loan program.

“Egypt’s membership in BRICS achieves many advantages,” Prime Minister Mustafa Madbouly told the state-run Extra News channel last week.

“The BRICS bloc has a development bank, which provides soft loans for its members to carry out development and infrastructure projects,” he said. “This opens up new horizons for Egypt to obtain financing to complete its development projects.”

The premier noted that the economic bloc allows member states to trade in local currencies and added, “It also allows partnerships between the member states in industrial and agricultural development projects in order to achieve self-sufficiency in food commodities.”

Economists agree that joining BRICS will give Egypt a chance to ease pressure on the dollar, but rule out membership as a quick fix for the country’s economic woes.

“BRICS has two good mechanisms for investment, the first of which is the New Investment Bank, which allows funding with good terms for carrying out infrastructure projects,” Yomn Hamaki, a professor of economics at Ain Shams University in Cairo, told Al-Monitor.

She said the bloc also has a mechanism for currency swaps in trade transactions among member states. Egypt already has agreements for currency swaps with BRICS members China and Russia.

In January, Russia’s central bank added the Egyptian pound to its list of exchange currencies, allowing for direct trade exchange between the pound and the ruble.

“BRICS also allows the use of local currencies in trade settlement, which can reduce transaction costs,” Hamaki noted. She believes, however, that BRICS membership will not be a solution to Egypt’s economic crisis in the near future.

“Egypt needs first to strengthen its competitive capabilities, integrate into the supply chains of the BRICS member states and redress its trade balance with the bloc countries, which is not in Egypt’s favor,” she said.

Egyptian exports to BRICS nations totaled $4.9 billion in 2022 while imports from the bloc reached $26.4 billion, according to the Egyptian Central Agency for Public Mobilization and Statistics (CAPMAS).

Finance professor and economist Medhat Nafie said that BRICS membership will not be a panacea for Egypt’s foreign currency crisis in the short term.

“The dollar crisis is a reflection of the deficit in Egypt’s trade balance and the budget deficit that is funded through domestic and foreign loans,” Nafie told Al-Monitor.

The Egyptian Finance Ministry forecasts a budget deficit of 824.4 billion Egyptian pounds ($26.7 billion) for the 2023/24 fiscal year , which began July 1, up from an estimated 723 billion Egyptian pounds ($23.3 billion) in 2022/23 and 486.5 billion Egyptian pounds ($15.7 billion) in 2021/22.

Nafie said BRICS membership could be effective for Egypt if it managed to redress its trade balance with the other bloc countries.

“There could be a de-dollarization provided that the trade balance with the BRICS nations becomes in Egypt’s favor,” he said. “If BRICS succeeded in creating a preferential market for intertrade and the use of local currencies in trade transactions, this would reduce pressure on the dollar in Egypt.”

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