Egypt, Tunisia and Brazil: Countries at Risk of Collapse, on the Footsteps of Sri Lanka

The French newspaper Le Journal du Dimanche revealed that the rise in food and energy costs due to the war in Ukraine, the slowdown in the global economy and the sharp rise in interest rates had had a significant impact on many emerging countries, Egypt, Tunisia and Brazil in particular.

The health crisis caused by the Covid-19 pandemic has deeply damaged the already weak and vulnerable countries. As a result, the debt of the poorest countries has reached its highest levels, exposing the three countries, among others, to suffer unparalleled economic shock, as George Gray Molina, chief economist at the United Nations Development Program, emphasized.

The British weekly The Economist reported that 53 of these countries are considered at risk because the International Monetary Fund sees that their debts are either unsustainable or at risk of becoming so due to debt default or bonds reaching shallow values.

The classic signs of debt crises such as currency crashes, bond yield spreads of 1,000 basis points, and declining foreign exchange reserves suggest a record number of developing countries are now in trouble.

Already, Lebanon, Sri Lanka, Russia, Suriname and Zambia have defaulted, Belarus is on the brink, and at least 10 other countries are in danger, as rising borrowing costs, inflation and debt fuel fears of economic collapse.

 

Depth & Dictatorship

Among these countries, Tunisia is in full negotiations with the International Monetary Fund to conclude a fourth loan of $4 billion. Yet the country's oppressive presidential system may tip the scales against Tunisia, warns the French weekly, stressing that this loan is necessary for Tunisia, which is going through a financial crisis. Tunisia's debts exceed 100 percent of GDP, and the accelerating inflation is becoming heavier on daily-basis for the 4 million poor and the 1.9 million middle-class people.

The recovery of some sectors, such as tourism, which was already affected by the Coronavirus, is still very slow. Tunisia, in particular, received only about 650,000 Russians and Ukrainians. This combination of factors played a role in ranking Tunisia as one of the most vulnerable countries.

The same applies to Egypt, which Le Journal du Dimanche made clear that negotiations between it and the International Monetary Fund seem tense. The latter is not satisfied and wants Egypt to resort to radical financial and structural reforms. The country has already been ranked by The Economist as one of the middle-income countries in a dire situation: its debt accounts for nearly 95 percent of its gross domestic product, according to Reuters.

Reuters news agency quoted David Rogovich, an analyst at Moody's Investors Service, saying that Egypt, Kenya, Tunisia, and Ghana are the most vulnerable countries.

The economic expert, Muhammad al-Nouri, said, in a statement to Arabi 21: "I do not think that there is a difference in describing the economic situation today in Tunisia, and at this very moment in which the country is experiencing an unprecedented state of a complex crisis in which the economic, the political, the social, and the health are mixed."

The expert, Muhammad al-Nouri, stressed that this crisis reflects the inability of the government based on sound management of the situation and controlling the joints of the crisis, especially the ability to anticipate the near future, let alone the distant future, in light of everyone's anticipation of the signs of the government's entry into official negotiations with the International Monetary Fund.

The economic expert pointed out that in addition to the doubts associated with the possibility of these negotiations, reaching concrete, practical results requires a period of no less than four months, doubling the severity of the crisis and exacerbating the impasse.

 

Amazing Similarities

Yehia Hamed, Minister of Investment during the era of the late President Mohamed Morsi, drew attention to an analysis he described as "extremely important," in which he referred to Robert Springborg's description of Egypt as a beggary state that behaves as if it were a rentier state rich in oil like Saudi Arabia or a prosperous trading country like China, although Egypt is neither this nor that.

Hamed said in an article he wrote on the Middle East Eye website that the analysis also warned of what he called "amazing similarities of Egypt with pre-crisis Lebanon."

Hamed pointed to previous warnings he issued through the media, warning of the dangers of an imminent financial collapse in Egypt, and that he also did so through letters and meetings with Western political leaders, adding: "I would not wish even for my worst enemy that what Springborg wrote would apply to their countries…Hmm, it's more like the scenario depicted in the movie Don't Look Up, except that instead of ignoring the meteor coming towards Earth, we're talking about a country of 102 million people about to be hit by a similar meteor."

Le Journal du Dimanche continues to clarify that Turkiye is also among the countries threatened by the fate of Sri Lanka. However, the French newspaper explained that Turkiye has a dynamic economy and a moderate level of public debt, but it depends on foreign countries for its available currency reserves. The lack of new economic measures could then lead to a balance of payments crisis.

In Brazil, although the country has benefited, unlike other emerging countries, as the breadbasket of the world, the approaching date of the elections prompted President Jair Bolsonaro to loosen the restrictions of the Brazilian wallet in search of popularity against his opponent, Lula da Silva, which led to the exacerbation of the public debt.

The French newspaper warned that if the markets panic in the face of financial instability in the country, the sudden flight of capital could lead to a recession or even collapse.

 

Debt Deal

In Argentina, Le Journal du Dimanche noted that the debt deal is in jeopardy, pointing out that the country's new Economy Minister Silvina Patakis traveled to Washington earlier this week to meet with the International Monetary Fund, the US Treasury, and investors.

The country's annual inflation rate reached 64 percent during June and could reach 90 percent by the end of the year, according to the US bank Morgan Stanley. Also, the Argentine economy has not recovered from the crisis, and it is likely that the government will be forced to adopt austerity measures for its population.

In Afghanistan, the resurgence of the Taliban and the collapse of the government in August 2021 was disastrous for the country's economy. The Taliban's attempts to attract international investment have been unsuccessful due to their refusal to comply with international laws and values, especially with regard to human rights. This crisis is also manifested in unemployment. In the three months after the Taliban came to power, employment fell by 8 percent, according to the International Labor Organization.