“Tighten your belts”... Is austerity enough to save the Egyptian pound?

Controversy returned once again to Egypt's austerity plans, hours after the government announced measures to rationalize public spending amid an economic crisis and a decline that has afflicted the country's currency since the start of the Iran war last February.

The government statement stated that a draft decision includes rationalizing public spending in the entities included in the state’s general budget and public economic bodies for the current fiscal year, and rationalizing the electricity consumption of these entities by 20%, for a period of three months.

However, the important matter in the government’s statement is that it said that the decision includes “an emphasis on postponing spending on any needs that do not bear the nature of extreme necessity, and with regard to dealing in foreign exchange, it is necessary to obtain the approval of the Ministry of Finance to authorize spending with the foreign component on any aspect of exchange, after coordination with the Central Bank and the relevant and competent authorities.”

Egypt has recently faced new challenges in providing hard currency, as the war has cast a shadow on Egypt's economy. The pound is one of the currencies most negatively affected by the consequences of the war, as it has declined by about eight percent since its outbreak, which led to a rise in inflation and raised concerns about the course of the currency. The pound reached its lowest level ever at 56 pounds to the dollar on October 26.

Wide interaction on social media

Experts believe that the government's tight monetary policy comes in light of the rise in oil prices and pressure on the pound amid renewed risks of escalating regional conflict and restrictions on hard currency revenues as a result of the high possibility of continued disturbances in shipping activity across the Red Sea.

The government’s announcement of austerity measures, or what is popularly known as “belt-tightening,” sparked a lot of controversy on social media platforms, especially about whether the move reflects a preparation for exceptional economic conditions imposed by the rapid transformations in the region and the world.

Social media users warned that the step may burden the Egyptian citizen, especially in light of the current wave of high prices, amid questions about who will pay the austerity bill.

On the other hand, others tried to highlight the importance of the new measures in light of the current economic crisis and that they may lead to curbing the rise of the dollar against the Egyptian pound.

The new austerity plan brought to mind similar measures taken by successive Egyptian governments in recent years, especially since the occurrence of a dollar crisis in the country.

Austerity stations in Egypt

Egypt has witnessed a gradual path of austerity since 2016, which began with floating the pound and reducing energy subsidies as part of an economic reform program with the International Monetary Fund. Then, in 2019, the state completed lifting subsidies on fuel and electricity and implementing the automatic pricing mechanism to reduce the budget deficit.

During the Corona pandemic, the government maintained financial discipline while providing limited support to the economy, before austerity measures returned strongly in 2022 and 2023 with the currency crisis and inflation.

Between 2024 and 2025, economic policies moved toward what is known as “structural austerity,” by selling assets, slowing down some projects, and attracting foreign investments to ease financial pressures without widespread social shocks.

Egypt, the largest Arab country in terms of population, is suffering from an economic crisis that the government is facing through investment and trade deals with Gulf states, in addition to International Monetary Fund loans.

In a previous interview with DW Arabia, Timothy Kaldas, deputy director of the Tahrir Institute for Middle East Policy in the United States, said that the main problem is “deeper and still unaddressed, which is that Egypt suffers from a structural current account deficit. Meaning that the Egyptian economy consumes more dollars than it produces on an ongoing basis.”

He added that Egypt "is considered very vulnerable to shocks. One of the reasons it is not currently in a bigger crisis is that remittances from Egyptians working abroad, which reached historic levels last fiscal year, amounted to about $47 billion."