Hamza Meddeb is a research fellow at the Malcolm H. Kerr Carnegie Middle East Center in Beirut, where he co-leads the center’s new Political Economy Program. Amr Adly is an assistant professor in the Department of Political Science at the American University in Cairo. He is the author of Cleft Capitalism: The Social Origins of Failed Market-Making in Egypt (Stanford University Press, 2020). Recently, they published a Carnegie article titled “How Rising Debt Has Increased Egypt’s and Tunisia’s Geopolitical Peripheralization,” which examines how both countries’ funding needs have negatively affected their geopolitical standing and independence of foreign policy decisions. Diwan interviewed the authors in late May to discuss this issue as well as the specifics of their article.
Michael Young: You recently wrote an article for Carnegie, the first for the Middle East Center’s new Political Economy Program, on how rising debt has increased Egypt’s and Tunisia’s geopolitical peripheralization. What is your argument and what is the process you describe?
Hamza Meddeb and Amr Adly: Our argument is rather straightforward. Egypt’s and Tunisia’s dependency on foreign funding has led them to become peripheral in the global economy and in Middle Eastern and North African geopolitics. Concretely, this dependency on foreign funding has produced a two-tier form of marginalization. For a decade, it led both countries to adopt short-sighted economic policies that were primarily driven by their need to secure outside financing and accept their creditors’ preferences to fill their funding gaps. This financial dependency also led to their geopolitical marginalization, as it exacerbated both countries’ dependency on hydrocarbon-producing countries that funded them when international creditors became more reluctant to do so—the Gulf Cooperation Council (GCC) states in the case of Egypt and Algeria in the case of Tunisia. The peripheralization process reflects both an economic form of marginalization and a geopolitical dependency process that have increasingly undermined both countries’ foreign policy autonomy.
MY: Why did you compare Egypt and Tunisia?
HM and AA: This article is a part of an ongoing discussion and a decade-long collaboration between us. In 2017, we published an article comparing how different political settings impacted economic adjustment in both countries. Despite their divergent paths after the 2010–2011 uprisings, Egypt and Tunisia have been facing similar economic challenges. Both countries went through International Monetary Fund (IMF) programs in 2016 that included tax increases, spending cuts, and devaluations of their national currencies. Austerity measures were tough to implement in both countries and their political regimes responded differently. After 2013, Egypt’s leadership implemented fiscal adjustment measures in an autocratic fashion. Tunisia’s democratic and pluralist regime failed to enact a consensual reform program given the veto power of well-entrenched domestic interest groups. Both countries ended up failing to restructure their economies and saw their dependency on foreign funding dramatically rise.
After the beginning of the war in Ukraine, Egypt and Tunisia also ended up facing similar challenges. Both were striving to secure external financial support, having suffered from food and energy price shocks as well as rising interest rates. Democracy had already unraveled in Tunisia after the power grab operated by Qaïs Saied in July 2021 and the authoritarian regime in Egypt was hugely constrained by the country’s fiscal crisis. Here again, both countries presented a similar trajectory of geopolitical dependency. The comparison between Egypt and Tunisia is also interesting as it shows how financial assistance and bailout strategies have become instruments in the elaboration of foreign policies and how they are playing a key role in reshaping the Middle East and North Africa today.
MY: What is the debt situation in Tunisia, and how is the government addressing this situation?
HM: Tunisia’s public debt dramatically increased from 47.7 percent of GDP in 2012 to 88 percent in 2022. The percentage of short-term debt in Tunisia’s external debt increased from 21.7 percent in 2011 to 32.4 percent in 2021. These trends reflect the country’s dependency and exposure to external financial markets and the sharp decline over a decade in the major sources of hard currency—investment, tourism, and revenues from Tunisia’s exports of phosphate. In addition, Tunisia’s publicly guaranteed debt is nonnegligible, at more than 14 percent of GDP, of which 61 percent was external in June 2022. This basically represents the debt of state-owned enterprises and state agencies guaranteed by the state. The rise in international energy prices, the high dependency on food imports, and the increase in global interest rates only exacerbated Tunisia’s need for hard currency. The problem is that after 2019, Tunisia lost access to international financial markets as its credit rating was periodically downgraded by major rating agencies. Under these conditions, the government has been managing the situation by taking three key measures: increasing borrowing from the domestic market, which has had the dramatic consequence of crowding out funding for the private sector; reducing the import bill in order to avoid a sharp decline in foreign currency reserves, which has created frequent shortages in food products; and increasing taxation in order to partially cover its deficit.
MY: What is the debt situation in Egypt, and how is the state addressing this situation?
AA: Egypt’s overall public debt, both domestic and foreign, today stands at over 100 percent of GDP. Foreign debt has doubled in absolute terms since 2017, reaching $160 billion. The main challenge is to roll over Egypt’s foreign commitments given that the country has become effectively cut off from international financial markets with the hikes in interest rates by the U.S. Federal Reserve and the country’s deteriorating credit rating.
MY: In what specific ways have you seen the impact of the debt on the geopolitical standing of both countries? In what ways have they become peripheral?
AA: Both countries have become increasingly reliant on getting resources from outside their economies in order to meet their external commitments, be it servicing their growing debts or financing their imports. This has led to a two-tier peripheralization for them, as noted earlier. Over the past decade, Egypt has recurrently required financial support from Saudi Arabia and the United Arab Emirates. In 2017, Egypt handed over two uninhabited, yet strategically important, islands in the Red Sea—Tiran and Sanafir—to Saudi Arabia. With the deepening of Egypt’s financial needs, the GCC states have been increasingly conditioning their support on gaining control of Egyptian state assets, some with strategic value, such as seaports and public utilities, which implies reconsidering the role of state in the economy. At the regional level, Egypt was absent from the Saudi-Iranian reconciliation, a major event that has the potential to reshape the geopolitics of the Middle East.
HM: In Tunisia, Saied’s rejection of an IMF deal in April 2023 furthered the country’s isolation from its G7 partners. Tunisia has had to rely exclusively on financial support from Algeria through loans, deposits, and gas supplies at preferential prices. However, the cost has been Tunisia’s increasing alignment with Algeria in its conflict with Morocco. This alignment was particularly obvious when Saied officially received leaders of the Polisario Front in Tunis in September 2022, showing that Tunisia was leaning toward the Algerian position in the Western Sahara conflict. The episode triggered an open diplomatic crisis between Tunis and Rabat, and both countries recalled their ambassadors. More fundamentally, the episode reflected the end of Tunisia’s historical position of neutrality in the rivalry opposing Algeria to Morocco. This is no longer possible because Tunis has become financially dependent on Algiers.
MY: What would it take for both countries to extract themselves from the situation in which they find themselves on a geopolitical level? What do they need to do to become relevant again?
HM and AA: In the immediate term, both require a restructuring of their foreign debt. This requires collaboration with their creditors and sponsors. In the case of Tunisia, the country needs an IMF deal, otherwise it will default on its debt in the coming months. In the case of Egypt, even though an IMF deal was reached in early 2023, the country’s ability to meet its commitments depend heavily on securing the support of GCC investors. In the medium term, both Tunisia and Egypt have to introduce policy and institutional reforms in their external sectors, with an eye on trade to mitigate their current account deficit and hence their huge external financial needs. They need to attract investments and create a space for the private sector, which implies reconsidering the role of the state in the economy. Strategically, both need to engage in food and energy security strategies. This means revising their agricultural and energy policies and reducing the cost of their food and energy imports.
