Provider of in-depth & balanced analysis on hot issues around the world

Tunisia is beset by deepening political and economic challenges. President Kais Saied is transforming the country’s parliamentary system into an authoritarian presidential one that has become increasingly repressive. Arrests and convictions of opposition politicians have surged. Saied’s aggressive anti-foreigner discourse has fuelled xenophobic sentiment and contributed to a spike in violent attacks against sub-Saharan migrants. Economically, Tunisia is grappling with the fallout of a decade of sluggish growth compounded by a series of economic shocks since 2020. The nation’s public debt has soared, with significant debt repayments looming. As the country tries to deal with mounting financial constraints, its inability to attract foreign loans is further clouding its economic future. Saied now must decide whether to embrace a credit agreement with the International Monetary Fund (IMF) or potentially default on Tunisia’s foreign debt. Against this backdrop, the EU and, in particular, Italy have a pivotal role to play. They can either help steer Tunisia toward a more stable economic future or watch it descend into chaos. A worrying political and economic outlook While the protests that led to the Arab Spring began in Tunisia, the promise of a more democratic and egalitarian society in the North African country did not come to fruition. To be sure, the protests did lead to the overthrow of autocratic Tunisian President Zine El Abidine Ben Ali in 2011. Moreover, Tunisia was the sole country to emerge from the regional uprisings with a new democracy. That experiment, however, foundered after Saied – who was elected to the presidency in 2019 – seized a monopoly on power in July 2021. Over the past two years, he has replaced the country’s semi-parliamentary system with one lacking checks and balances, consolidating power in his hands. People’s fear of repression resurfaced. Since mid-February 2023, arrests and convictions of public figures, especially politicians, have accelerated, undermining a disorganised and divided opposition. Meanwhile, large sections of the population have focused on survival in the face of a worsening economic crisis and have increasingly disengaged from politics. President Saied has attempted to shore up his dwindling support by pushing nationalist policies. He has jailed members of the opposition in a move that seems aimed at bolstering his standing with swathes of the public who are frustrated with the former political class. Saied has also xenophobically accused sub-Saharan migrants of conspiring to change Tunisia’s identity, creating a climate conducive to repeated violent attacks against a vulnerable minority. Economically, the country is still reeling from a decade of slow growth. After the 2011 uprising, the Tunisian government combatted rising unemployment in part by hiring hundreds of thousands of civil servants. Today, the public sector is the country’s largest employer and half of the annual budget is spent on the public payroll. At the same time, public and private investment in infrastructure, research and other growth-enhancing spending items has dropped significantly, leading to a sharp decline in GDP growth. External factors also chipped away at the Tunisian economy. The Covid-19 pandemic brought a collapse in tourism. Russia’s invasion of Ukraine, meanwhile, led to a spike in commodity prices. Surging inflation – particularly in food prices – and shortages of basic goods have eroded Tunisian living standards. Against this backdrop, Tunisia’s public debt has skyrocketed, reaching nearly 90 per cent of GDP in 2022, with substantial financing requirements needed to maintain current levels of spending. Credit rating agencies have downgraded the country as it struggles to balance its budget. The latest downgrade took place in June, when Fitch lowered Tunisia’s rating to CCC- (well into junk status territory). As a result, access to international financial markets has been virtually shut off, given the prohibitive interest rates (over 20 per cent) that this sovereign rating would entail. While the current account deficit has shrunk and foreign currency liquidity has improved over the past few months because of an uptick in tourism revenues and remittances from Tunisians working abroad, servicing its external debt will continue to be extremely challenging. With 2.6 billion US dollars in repayments scheduled for 2024 (including a euro-denominated bond maturing in February, equivalent to 900 million US dollars), it is still unclear how the government will be able to secure sufficient funds to meet these liabilities. The 2024 budget draft anticipates loans from Algeria and Saudi Arabia, as well as other, as yet unknown, external sources. The IMF deal and the role of the EU Despite these financing difficulties, Tunisia has not yet signed a deal with the IMF. In October 2022, Tunisia and the IMF agreed on the terms of a 48-month, 1.9 billion US dollar loan aimed at stabilising the economy, but Saied rejected the deal, fearing social unrest from cutting subsidies and reducing the public sector wage bill. The IMF board postponed the deal in response. Since then, the president has remained steadfast in his rejection of what he calls “foreign diktats” from the IMF and Western states. The Europeans – in particular, Italy – have pressed the IMF to reopen negotiations and offered incentives to persuade Saied to accept a revised deal, despite their internal divisions on how to treat Tunisia. They are applying this pressure largely because the economic fallout from a debt default could further increase the number of people – both nationals and migrants from sub-Saharan Africa – leaving Tunisia for Europe. While some EU member states, such as Germany, have taken a more critical stance towards Kais Saied’s authoritarian turn, eventually the migration, security and economic interests of Italy and, to an extent, France seem to have prevailed within the EU. Due to its geographic proximity to Tunisia, Italy would receive a majority of a migration influx, at least initially. For this reason, the Italian government has reiterated its concerns over Tunisia’s economic situation on multiple occasions, while refraining from expressing any criticism of the country’s increasingly authoritarian turn and violent attacks against sub-Saharan migrants. The EU has offered incentives to Tunisia to accept a deal with the IMF. After Giorgia Meloni and later EU Commission President Ursula von der Leyen and Dutch Prime Minister Mark Rutte visited Tunis in June, they unveiled 900 million euros in macro-financial assistance conditioned on a deal with the IMF and 105 million euros for joint cooperation on border management and anti-smuggling measures to reduce irregular migration to Europe. Despite the sweeteners the EU offered, the likelihood of a revised deal between Tunisia and the IMF has receded. In August, Saied removed the head of government, Najla Bouden, who had been directly involved in the negotiations with the IMF, and replaced her with a more pliant official, Ahmed Hanachi. Since then, Tunisia hasn’t put forward a revised proposal to the IMF. In October, the president reinforced his position by sacking Economy Minister Samir Saied after the latter claimed that a deal with the IMF would send a reassuring message to Tunisia’s foreign creditors. Tunisia has also rejected part of the funds offered by the EU. On 3 October, Saied rejected the first tranche of EU financial help, declaring that this “derisory” amount ran counter to the agreement between the two parties and was just “charity”. The repercussions of this refusal on the rest of the EU’s financial incentives are unclear. A fork in the road There are obvious reasons for Tunisia to secure a loan from the IMF. It would send a reassuring signal to Tunisia’s foreign partners and creditors. It could encourage Gulf Arab states to provide additional financial support in the form of government loans and deposits with the central bank, and investment in the economy. That would provide the Tunisian government with breathing space. But implementation of reforms required under the loan’s terms could set off anti-government protests by the country’s main trade union (the UGTT) and, in turn, government-led repression. To forestall such a scenario, the president himself could incite protests and riots by using nationalist rhetoric to scapegoat the IMF for any unpopular measures required by the loan. A no-agreement scenario, however, would have much more severe and potentially even catastrophic consequences. Without a loan, Tunisia would struggle to find alternative funding sources to meet its scheduled foreign debt repayments. Saied could then resort to a politically motivated strategic default, followed by negotiations to restructure the country’s external debt. Some Tunisian economists and supporters of the president are advocating for this approach: they say that declaring bankruptcy on external debt would allow the government to hammer out a restructuring plan with creditors and argue that the impact on the economy would be fairly limited, thanks to Tunisia’s capital controls and its banking sector’s low exposure to foreign bonds. But this approach carries great risk, as a foreign debt bankruptcy could lead to a run on Tunisian banks and destabilise the financial sector. In addition, the government could end the central bank’s independence to print money, fuelling an inflation spiral. Politically, a default and its socio-economic repercussions could open the door to a dangerous spiral of social and criminal violence. It could also boost irregular outward migration, with Tunisians fleeing the growing political and economic chaos. Widespread protests may erupt against the disastrous social effects of the president’s failed economic policy, prompting a violent response targeting businesspeople and political opponents for their alleged links to the West, as well as Western diplomats and the local Jewish community. Balancing economic support and respect for rights In light of these two possible scenarios, the EU and Italy should continue to encourage the Tunisian authorities to negotiate with the IMF, which remains the least politically and economically destabilising option on the table for Tunisia, if carried out with due care. At a minimum, a revised deal should include reduced expenditure cuts compared with the earlier proposal, particularly in the context of energy subsidies. At the same time, Italy and the EU should exercise caution and avoid turning their understandable concerns about Tunisia’s stability into a blank check for the president. In particular, they should press the authorities to rein in the abuses perpetrated against migrants and stave off potential attacks against opposition politicians, businesspeople and the local Jewish community. Aside from humanitarian considerations, this would serve Italy’s overarching goal of curbing migration: after all, attacks against the sub-Saharan minority have spurred outward migration, a trend that would accelerate if government persecution becomes even more severe. While supporting the deal, however, the EU and Italy should also prepare for the possibility of Tunisia continuing to reject it and declaring a foreign debt default. In such a scenario, the EU should be prepared to offer emergency financing to the country to help with imports of wheat, medicines and fuel. In doing so, the EU should synchronise the positions of member states to prevent conflicting agendas. Schisms have already emerged between countries like Germany and Italy over how to address Tunisia’s authoritarian drift. For this reason, acknowledgement of the importance of internal stability could provide a common ground in overcoming divisions and helping prevent a new wave of anti-migrant violence.

Director-General, Your Excellencies, Distinguished Guests, Dear Friends, Young and Old, This week, as we have gathered here at the World Food Forum in the headquarters of the Food and Agriculture Organisation of the United Nations in Rome to discuss the necessary transformation of our agri-food systems, we must not only be conscious of targets missed or imperfectly achieved, but of the need for courage, and to generate new capacity to move to new models of better connection between economy, social protection, social justice and ecology. We are confronted with a climate and biodiversity emergency that cannot be handled by the tools that produced it or by the architecture of how we made decisions before. We are called upon to, once and for all, tackle with alternatives and sustained effort and innovation, the vicious circle of global poverty and inequality, global hunger, debt and climate change, our interacting crises. That is the context in which sustainable food systems must be achieved. I ask you all gathered today to respond in the most meaningful way within your capacity, within your generation, in a way that includes all generations, to the challenge set out by United Nations Secretary-General António Guterres in his recent statements: This is how the Secretary-General put it: “The Sustainable Development Goals aren’t just a list of goals. They carry the hopes, dreams, rights and expectations of people everywhere. In our world of plenty, hunger is a shocking stain on humanity and an epic human rights violation. It is an indictment of every one of us that millions of people are starving in this day and age.” It can be put right but we must change and there is work involved in upskilling in such a way that we can not only identify and critique assumptions of failing models but be able to put the alternative models in place. We have had so many broken promises. Only 15 percent of some 140 specific targets to achieve the 17 UN Sustainable Development Goals are on track to be achieved. Many targets are going in the wrong direction at the present rate, and not a single one is expected to be achieved in the next seven years. However, we have some reasons to be hopeful. When I look around this room today, I see so many engaged and committed people, including young people who have the enthusiasm, energy and creativity needed to tackle the serious structural causes of food insecurity and global hunger. But it is important to acknowledge that young people are not alone in seeking authenticity of words delivered into actions that have an ethical outcome. There are those who have spent their lives seeking a fairer world, one in which hunger would be eliminated – as it can be. We must recognise their efforts. We must work together to harness this collective energy and creativity into strong movements that will deliver, finally, a food-secure world for all. This will require, I suggest, moving to a new culture of sharing information, experiences, insights. As the cuts have taken effect, we must take the opportunity of developing a view, post-silo culture, of sharing insights, and I see FAO as uniquely positioned for this. As Glenn Denning, Peter Timmer and other food experts have stated, achieving food security is not an easy task given how food hunger is “deeply entwined with the organisation of economic activities and their regulation through public policies”, given, too, how governments and markets must work together, how the private, public and third sectors must work together. All of our efforts must have the character of inclusivity. Each of us as global citizens has a responsibility to respond. To ignore it would be a dereliction of our duty of care to our shared planet and its life-forms including our fellow humans and future generations. The Secretary-General’s pleas in relation to the consequences of climate change are given a further terrible reality in the increased and spreading threat of hunger, a food insecurity which is directly affected by the impact of climate change. For example, figures published by the Food and Agriculture Organization of the United Nations show that 26.2 percent of Africa’s population experienced severe food insecurity in 2021, with 9.8 percent of the total global population suffering from undernourishment the same year. It is time for us all, as leaders and global citizens, to take stock of how words are leading to actions, to increase the urgency of our response to what is a grave existential threat and to achieve change. It is clear, as the Secretary-General’s powerful statement shows, that we need to begin the work of reform in our international institutional architecture, such as UN reform at the highest level, including the Security Council and the Bretton Woods institutions, if we are to achieve what the Secretary-General has suggested is the challenge to “turn a year of burning heat into a year of burning ambition”. Let us commit then to sharing purposes, projects, resources, seeking a new culture for sustenance solutions. Those of us who have spent much of our lives advocating UN reform believe that its best prospects are in the growing acknowledgement of the importance of the vulnerabilities and frustrated capacity of the largest and growing populations of the world being represented, not only nominally but effectively, through a reform that includes reform of the Bretton-Woods Institutions. As Secretary-General Guterres has said on a number of occasions, it is time to reform what are 1945 institutions, including the Security Council and Bretton Woods, in order to align with the “realities of today’s world”. We have to acknowledge too that the development models of the 1950s and 1960s were part of the assumptions that brought us to the crises through which we are living. New models are needed and the good news is that a new epistemology, our way of looking at the world, of sufficiency and sustainability, is emerging. We are seeing good work already occurring. Good development scholarship is available to us. I reference, for example Pádraig Carmody’s recent book, Development Theory and Practice in a Changing World. Such work builds important bridges from the intellectual work that is so badly needed and is welcome at the centre of our discourse on all aspects of interacting crises, including global hunger, and the need to link economy, ecology and a global ethics. What we must launch now is a globalisation from below. Replacing the globalisation from above that has given us a burning planet and threatened democracy itself, with a globalisation from below of the fullest participation, we can establish and indeed extend democracy, offering accountability and transparency of our work together. Writers such as Pádraig Carmody are not alone in suggesting that achieving the Sustainable Development Goals provides the opportunity for moving past the worst contradictions of failed models and dangerous undeclared assumptions. The demise of hegemonic development theory and practice may be a result of several factors, such as the rise of ultra-nationalism around the world, the increasing importance of securitisation where the most powerful insulate their lives from the actions of the excluded, and the existential threat posed by the climate crisis. Such research adds to the growing body of development literature that argues for a pro-active, structural-focused, tailored approach to development. The Hand-in-Hand Initiative of the FAO, details of which were discussed at this week’s parallel session, is a most welcome initiative, one that aims to raise incomes, improve the nutritional status and well-being of poor and vulnerable populations, and strengthen resilience to climate change. It heralds a belated recognition too of the insufficiency of a reactive emergency response to famine and hunger crises. It suggests a move towards one that tackles the underlying structural causes of hunger. Young people will need patience and to dig sufficiently deep to achieve these necessary changes. They are right in seeking to be partners, so much more than being allowed as attendees. Hand-in-Hand recognises the importance of tailor-made interventions to food security, using the best available evidence in the form of spatial data, validated on the ground through local diagnostics and policy processes, to target the most food insecure, the most hungry, the poorest. It recognises that context-specific employment and labour market policies are part of the sustainability challenge. I believe that evidence from below is crucial to achieving globalisation from below and that it can be achieved by a reintroduction of new re-casted anthropology guided by, among others, the new African scholars now available, whose work is empirical and peer-tested, can be invaluable in giving transparency on projects and investments – a strategy for fact-gathering for empowerment of rural people so like the 1955 fact-gathering with rural people of the FAO – first published in 1955 and used by me in 1969! Young people must be about upskilling to be able to critique all of the assumptions guiding the policies on to their lives. A key objective for us now must be to strengthen institutional capacity on the ground, not only at the strategic level, but also fundamentally, so that the public, farmers, and other stakeholders’ institutions are enabled to participate in territories-based agri-food systems. Such a move is fundamental to a successful food security strategy. Our institutional architecture and the multilateral bodies within it, must be made fit for purpose if we are to tackle effectively and meaningfully our contemporary food insecurity crisis which is worsening according to the 2023 Global Report on Food Crises, with 258 million people across 58 countries suffering acute food insecurity. Perhaps most crucially, we must acknowledge, as United Nations Programmes such as the Hand-in-Hand Initiative does, the critical importance of partnership and collaboration in addressing global hunger. We must do everything we can to ensure cross-sectoral co-ordination, foster coherent development actions, under a common, shared vision. We must end all wasteful competitive silo behaviours, create a culture of openness and co-operation. The FAO is well positioned to lead on this with its new invigorated partnerships with the World Food Programme (WFP) and the International Fund for Agricultural Development (IFAD). Co-operation in the development and implementation of new models will be key to the achieving of any targets that seek to be sustainable and inclusive. For example, I suggest it will achieve best results if funders, such as the African Development Bank, are enabled and funded to work closely with research institutes, both at the national and international level, but particularly take account of field studies conducted over time at local level in the new anthropology so as to ensure that findings from the latest research feed into the design and implementation of any financial supports and investments. By providing a platform, a shared interactive transparent space for national authorities and producers, national and global businesses, multilateral development banks and donors to discuss and advance ways and means to finance the supported national food programmes, initiatives such as Hand-in-Hand are proving to be an effective flagship programme of the Food and Agriculture Organisation of the United Nations. Co-operation must work both ways. For example, the parts of the so-called ‘developed’ world suffering from problems of high levels of obesity and food wastage must learn from the deep knowledge and wisdom existing in the most populated continents, as well as the science, which points to a new ecological revolution, one in which agroecology – the bringing of ecological principles to develop new management approaches in agroecosystems – can play a fundamental role, especially for the poorest of our global citizens. We have seen the destructive impact of colonial models of agronomy promoting an over-reliance on a small number of commodity crops, herders incentivised to become less mobile and store less grain in order to maximise commodity crop production, and increasing imports in conditions of near monopoly of seeds, pesticides and fertilisers. This had the deadly effect of opening up farmers not only to the full force of extended droughts, the ravages of variable climate conditions, and a reliance on non-indigenous inputs, but also to global spaces where they have insufficient influence. We must retreat from these dysfunctional food systems model, with their related dependencies, with urgency and embrace models of sufficiency and effective local markets and see the value of making our way too that includes agro-ecological models that promote food security and development opportunities for the poorest people on our fragile planet. Adaptation and responding to the already changing climate is crucial for all of us, and especially in the most food-insecure nations. We must restore degraded ecosystems, introduce drought-resistant crops, ensure accessible digital services for smallholder farms, while creating new, sustainable green jobs for young people so that we may forge a smart, sustainable, climate-resilient development path for the continent. This week we have to acknowledge the many challenges we face including, inter alia, the energy, climate and biodiversity crises, war and conflict which exacerbate food insecurity, ensuring enabling policy environments, and reaching the long-term goal of sustainable food system transformation. Any agri-food initiative, be it for Africa, the Middle-East, Central or South America, or other food-insecure regions, must place inclusivity at its core. Specifically, more vulnerable, smallholder farmers must be targeted for inclusion as programme beneficiaries, not just large-scale, industrial level farmers and ever-expanding commercial plantations. Research has shown that irresponsible agri-business deals are sometimes falsely legitimated by the promotion of alleged achievement of Sustainable Development Goal Number 2 at any cost, without care as to consequence, ignoring the reality that smallholders need enabling policies to enhance their role in food production; that food insecurity is linked to rights, processes, and unequal access to land resources; and that dispossession disproportionately affects women farmers. On this latter issue of gender, achieving zero hunger requires gender-inclusive land and labour policies. Actions must prioritise the inclusion of women and girls who are more food insecure than men in every region of the world. Women must have a right to land recognised and enshrined. The gender gap in food security has grown exponentially in recent years, and will only deteriorate further in the absence of targeted intervention. Women are obviously the most impacted victims of the food crisis, thus they must be a part of the solution. Women produce up to 80 percent of foodstuffs. Empowering women farmers can thus serve as a transformative tool for food security. However, female farmers have, research tell us, limited access to physical inputs, such as seeds and fertiliser, to markets, to storage facilities and this must be addressed. Climate change, and our response to it, addressing global hunger and global poverty, exposing and breaking dependency is a core theme of my Presidency. It is the most pressing existential crisis that our vulnerable planet and its global citizens face. Throughout the world, young people and the youth sector have been at the vanguard of efforts to tackle climate change. Young people have demonstrated, time and again, how well-informed and acutely aware they are of the threat that climate change poses, as well as its uneven and unequal impacts. May I suggest to all of you that, as young innovators and future leaders in your respective fields, you will be at your best, achieve the greatest fulfilment for yourself and others, when you locate your contribution within a commitment to be concerned and contributing global citizens. Take time to ask how is my energy in the tasks of hand and brain being delivered and for whose benefit. May I suggest, too, that you will be remembered and appreciated all the more if you work to ensure that the results of science, technology are shared and that all human endeavours are allowed to flow across borders for the human benefit of all and with a commitment to ecological responsibility and inclusivity. Offer your efforts where they can have the best effect for all. Locate yourselves in the heart of the populated world, as Nobel Laureate William Campbell did with his research on river blindness. Changing our food systems is, however, let us not forget, an intergenerational challenge that requires an inter-generational approach. We must now empower youth to be in the driver’s seat to build a new, better, transparent model of food security in a variety of different settings. Let us endeavour, together, in our diverse world, to seek to build a co-operative, caring and non-exploitative global civilisation free from hunger, a shared planet, a global family at peace with nature and neighbours, resilient to the climate change that is already occurring, one based on foundations of respect for each nation’s own institutions, traditions, experiences and wisdoms, founded on a recognition of the transcendent solidarity that might bind us together as humans, and reveal a recognition of the responsibility we share for our vulnerable planet and the fundamental dignity of all those who dwell on it. Thank you. Beir beannacht.

Prime Minister Benjamin Netanyahu, this afternoon, at the Presidential Palace in Nicosia, at the joint statement with Cypriot President Nikos Christodoulides and Greek Prime Minister Kyriakos Mitsotakis: "Since the founding of this Eastern Mediterranean partnership between our three democracies, our relations have flourished bilaterally and trilaterally in ways that people found hard to imagine. I found it hard to imagine that it wasn't the case, when we have three very—in some ways, very similar countries. Hundreds of thousands, by now millions, of Israelis have come here, both as entrepreneurs, as investors, as technologists, as tourists, as diplomats. That is very natural. The reason it's natural is that we feel very comfortable with the culture. I saw that last night when we were having dinner, the three of us, in here, in Limassol, on the seaside, and Israelis walked by and they said hello. And you could see the Cypriot counterparts do the same. It's a very comfortable, informal Mediterranean democratic culture that we have that has historic roots and modern manifestations. This people-to-people base is now obviously going, takes on a different capacity in three main areas that we discussed. They all have to do with energy. The first one is gas. The second one is electricity. The third one is fire. On gas, we're discussing the possibilities that we'll have to decide soon, about how Israel exports its gas. And the same decisions have to be made by Cyprus. And we're looking at the possibility of cooperating on this. Those decisions will be made I think in the next three to six months. Probably closer to three months. The second thing, on the electricity connector. Both Israel and Cyprus are islands. Crete, part of Greece, is an island. There is an electricity connector that is being organized right now from mainland Greece to Crete to Cyprus. We would like to have it connected obviously to Israel, and possibly to the east of Israel, so that we can use, we can optimize the use of electricity. We discussed now the mechanism of how to advance this. The third thing is fire. The world is getting hotter, not only because the warmth of our relationship. That's the good side, but because the climate getting more punitive, with the eruption of fires that are, truly endanger our countries. We have communicated, we've cooperated on firefighting planes. We're talking about going well beyond that into AI systems for early detection, and other things that we're developing separately. We're going to do it better together in a variety of ways that we agreed upon as well. On terror, we've had instances now of cooperation between Israel and Cyprus, and Israel and Greece, where our security forces cooperated to stop terror, Iranian-backed terror.  I have to say that I think there's something else that could develop, and we discuss it at great length. There is now the possibility that we might have the expansion of the Abraham Accords to normalization with Saudi Arabia. All three countries view that as a great possibility, but they also see that this could lead to a connection between India, the Arabian Peninsula, Israel, Cyprus, Greece, and Europe. There is a natural, geographic connection, but it could be also something that would lead to many, many rewards for our peoples and for our countries. I think we all see eye-to-eye on that. I have to say that it's a pleasure to have, to receive your hospitality and to see my old friend, Kyriakos, here, and you as well, Nikos. We have a wonderful friendship and we look forward to seeing you, as we say, next year in Jerusalem." Prime Minister Netanyahu added: "We like your food. We like your dairy products. We like your yogurt. So as I told the leaders, and I'm telling you right now, we are going to soon open our dairy products market, which is long overdue. I think Israelis are going to be a lot happier, and your producers are going to be a lot happier. So be prepared for that. We can enjoy the benefits of each other's economies in the most direct sense. We intend to open the dairy market very soon to Greek and Cypriot—and other—imports. May the best yogurt win. You have a pretty good chance at winning."

The tentative merger agreement announced in June between the PGA Tour, DP World Tour, and LIV Golf sent shockwaves through the sporting world. The commercial operations of the three organizations are set to form a “new collectively owned” entity exclusively funded by Saudi Arabia’s Public Investment Fund (PIF). The PIF will reportedly acquire a significant minority stake in the yet-to-be-named for-profit company by injecting an estimated $3 billion into it.  The controversial merger deal, which some have described as “Saudi Arabia’s de facto takeover of professional golf,” has provoked two separate inquiries in the United States Senate and is seen as the latest effort by the kingdom to implement its ambitious tourism and investment strategy. In fact, sport is but one of 13 “strategic” sectors identified by Saudi Arabia’s sovereign wealth fund (SWF). Yet succumbing to the temptation to focus narrowly on how the kingdom’s PIF has upended the professional world of golf risks missing the bigger picture: Gulf ruling elites, like their counterparts across the globe, are leveraging their SWFs to proactively drive nation-building projects, fortify strategic international partnerships, and assume a more prominent role on the world stage. When the COVID-19 crisis struck, Gulf SWFs snapped up stakes in distressed Western companies, capitalizing on market gyrations. As the world struggles to exit from the worst of the pandemic, Gulf SWFs have entered a new phase of dealmaking. Benefiting from massive capital injections derived from higher oil revenue, they have been spending vast sums at home and abroad. The rise of Gulf SWFs The number of SWFs around the world has grown steadily over the past two decades, from 62 funds in 2000 to 176 in 2023. During that time, SWF assets under management (AUM) have ballooned from a mere $1 trillion to $11.36 trillion. Four regions dominate the landscape in terms of the number of SWFs and aggregate assets: Europe (specifically Norway and countries in Central and Eastern Europe), North America, Asia-Pacific (specifically China), and the Middle East, with the latter two regions accounting for four-fifths of global assets. For resource-rich countries such as Gulf oil and natural gas producers, SWFs have emerged as promising tools to save for future generations, mitigate the effects of outsized economic shocks, and/or be deployed as reserve investment and strategic development funds to spend on human, natural, social, and physical capital. The Gulf is currently home to about 20 SWFs, with at least one such fund originating from each of the six Gulf Cooperation Council (GCC) countries. The various Gulf SWFs differ in terms of the size of their AUMs, investment strategies, as well as approaches to diversification, mandates and objectives, and governance structures. However, they share at least two broad similarities. The first is that the primary source of their funding is surplus revenues generated from the export of commodities, namely oil and gas. Second, they operate under the guidance and oversight of the government or ruling family. Gulf SWFs have deep pockets — collectively, they manage around $3.7 trillion. According to the Sovereign Wealth Fund Institute, the region’s seven largest funds have combined assets of over $3.2 trillion, amounting to about 40% of global SWF assets (see Table 1). In most cases, Gulf SWFs are directly controlled by members of the ruling families. Since March 2015, for example, Saudi Crown Prince Mohammed bin Salman has sat at the top of the PIF hierarchy. In March 2023, Reuters reported a reshuffling of wealth fund leadership, with UAE President Mohamed bin Zayed Al Nahyan naming his brother Sheikh Tahnoun — head of ADQ, Abu Dhabi’s third-biggest investment fund — to chair the ADIA. Another brother, Mansour bin Zayed Al Nahyan, leads Mubadala. In this way, Gulf monarchies can maintain close control over how resource wealth is spent and align that spending with their political, public, and personal objectives. Higher oil prices and ongoing market turmoil are the driving factors behind a windfall for Gulf oil and gas producers. To give just one example of the scale of the oil revenue bonanza, Saudi Aramco reported earnings of $161 billion in 2022, claiming the highest-ever recorded annual profit by a publicly listed company. The financial firepower generated by high oil prices has, among other things, translated into increased spending by the region’s SWFs. The top five funds — Abu Dhabi’s ADIA, ADQ, and Mubadala, along with Saudi Arabia’s PIF and Qatar’s QIA — deployed more than $73 billion in 2022 alone, according to online tracker Global SWF. Jihad Azour, the International Monetary Fund’s (IMF) director for the Middle East and North Africa, maintains that Gulf producers could earn up to $1.3 trillion in additional revenue through 2026. Patterns and trends in Gulf SWF dealmaking The current wave of dealmaking by Gulf sovereign funds, which began with the outbreak of the COVID-19 pandemic, features several notable changes in both the pattern and the destination of investments. Gulf SWFs’ spending targets reflect a shift toward alternative assets and “industries of the future,” an acceleration of domestic investments, a growing appetite for global startups, a heightened emphasis on co-investment with private equity (PE) and venture capital (VC) firms, and greater geographic breadth of focus. Diversifying into alternative assets and industries of the future Historically, Gulf SWFs have hunted for attractive opportunities in times of volatility and low valuations. However, Gulf wealth investors recently have shifted toward assets that yield returns and generate growth. Instead of parking wealth in low-risk, low-return assets, they have diversified their investments into more profitable areas such as PE and listed shares. Indeed, “alternative assets” constitute a large and increasing share of total assets from the region’s three largest funds. There is a concurrent shift underway in investment allocation. Gulf SWFs have shown a keen interest in investing in technology and innovation-driven companies, alongside high-priority sectors such as healthcare, logistics, renewables, broadband, and digital infrastructure. Accelerating domestic investments The number of strategic funds with a mission to attract foreign investment and co-invest in the domestic economy is increasing significantly. With the exception of ADIA, which solely invests abroad, Gulf SWFs are “flexible funds” that do both. Saudi Arabia’s PIF, one of the largest and fastest-growing sovereign financial investment vehicles, deploys most of its assets domestically, as is generally the case among Gulf SWFs. PIF is the driving force behind the development of the kingdom’s so-called “giga-projects,” most notably NEOM, the Red Sea Tourism Project, the Qidiyya entertainment city near Riyadh, and ROSHAN. The fund has investments across a wide range of industries, from Saudi Electricity to Saudi Arabian Mining and Saudi Telecom. Since 2017, PIF has established 79 companies across its 13 strategic sectors. PIF’s big domestic investment push began with the announcement in 2021 of a five-year strategy that aims to more than double the value of its AUM to $1.07 trillion and to commit $40 billion annually to develop Saudi Arabia’s economy until 2025. The fund now owns several strategic investments in the consumer goods and retail sector, such as Noon.com, Amazon’s Middle Eastern rival and the region’s leading online shopping platform. Recently, PIF agreed to purchase a 30% share of Tamimi Markets Co. in a bid to help transform the company into a national champion and major regional grocery and food supply chain. In February 2023, the fund invested $1.3 billion in four domestic contractors to improve local supply chains for projects in the country. The fund has set up dozens of fully owned subsidiaries to seek new investment opportunities and launch manufacturing facilities in the kingdom. The recently established Halal Products Development Company aims to localize the development of a wide range of halal products. The newly founded Aseer Investment Company will operate as the PIF’s investment arm, part of an ambitious effort to transform the southwestern region into a global tourist destination. Furthermore, in June of this year, PIF launched Lifera, a commercial-scale contract development and manufacturing organization, to boost biopharmaceutical industry growth. PIF has also taken steps to develop synergies between its investment holdings and build its global brand. For example, the player jerseys of Newcastle United F.C. — the English Premier League soccer club in which the PIF purchased an 80% stake — display the logo of sleeve sponsor Noon.com. Incubating new industries Gulf wealth funds have been increasingly active in the global startup scene, mainly in offshore markets. Sanabil, Saudi PIF’s private investment arm, has notably backed a lengthy roster of U.S. startups. At the same time, PIF and China’s Alibaba Group are raising funds to jointly back technology startups in Asia and the Middle East. QIA is leading a funding round for Builder.ai, a platform for businesses to create custom smartphone apps. It has also led and made a follow-on investment in the recent funding round of Singapore-based Insider Pte Ltd (Insider), an AI-enabled digital marketing platform. According to YourStory, a media tech company for startups, India has emerged as “an investment stronghold” for Gulf wealth funds. QIA has invested in Swiggy (a food ordering and delivery platform), Rebel Foods (an online restaurant chain), VerSe Innovation (a local language tech firm), and Flipkart (an e-commerce company). Abu Dhabi Development Holding Company has pumped millions into Byju (an ed-tech firm) and Spinny (a used car retailing outfit). Lastly, ADIA has purchased stakes in MobiKwik (digital financial services platform) and Jaipur-based DealShare (a social e-commerce startup). There also seems to be a slow but steady commitment by Gulf wealth funds to startups in the region. ADQ has invested in health-technology company Okadoc, while ADQ and Mubadala, together with the PIF-backed Riyad Taqnia Fund, have provided fresh financing to TruKKer, a startup focused on logistics in the land freight sector. PE rounds in 2022 included PIF’s investments in Almosafer, a travel services provider, and FOODICS, one of the largest cloud-based fintech platforms for restaurants in the Middle East. Expanding co-investment partnerships Gulf SWFs are teaming up with other wealth funds or financial investors through joint ventures (so-called sovereign-private partnerships, SPP). These collaborative strategies serve multiple aims, including cost saving, information sharing, and portfolio diversification. Importantly, by utilizing state funds, Gulf SWFs’ engagement in co-investment partnerships aims to bring companies to their shores to support domestic development plans. An increasing number of Gulf SWF investment partnerships have targeted Asian assets. QIA and ADIA are among the most active co-investors. ADIA, ramping up its exposure to Asia, has teamed up with Singapore’s SC Capital Partners to target data center investments across the Asia-Pacific region. In June, QIA joined a consortium led by Korea’s MBK Partners to invest $1.2 billion in SK On, an electric vehicle battery manufacturer. Mubadala, too, has formed strategic partnerships. These include forging an alliance with KKR Credit to tap into Asia’s growth potential, joining forces with BlackRock to fund Tata Power Renewable Energy’s aggressive growth plans, and co-leading a $315 million funding round for China’s Hasten Biopharmaceutic. PIF has teamed up with Bain & Company to develop an “India strategy” focused on the infrastructure sector, in particular on renewable energy, and it has joined with Japan Bank of International Cooperation (JBIC) to promote collaborative projects in decarbonization and digital transformation. PIF and Singapore’s SWF, the Government of Singapore Investment Corporation (GIC), have partnered to invest a combined $986 million in South Korea’s Kakao Entertainment Corp. QIA has parlayed its investment in Indian Edtech firm Byju to set up its wholly owned subsidiary in Doha to focus on students from across the Middle East. Widening the geographic scope Gulf SWFs are not just bankrolling ambitious projects at home to support diversification efforts but plowing billions of dollars into assets regionally and globally. Bargain hunting in the West North American and European assets have long been mainstays of Gulf SWF portfolios. Even during the 2008-09 financial crisis, Gulf investors held onto their major Western stakes, taking advantage of their long-term investment horizons to ride out the downturn and seek out undervalued assets. In 2022, Gulf SWFs spent almost $89 billion on investments globally, double the previous year. According to Global SWF, an outsized $51.6 billion of that amount was deployed in Europe and North America. The same source also reported that, out of the 60 SWF investments announced in 2022 that were larger than $1 billion, of which 26 were made by Gulf funds, 17 were invested in North American or European assets. This includes ADIA’s joint ventures with Rockpoint and Landmark Properties in the United States as well as Greystar in the United Kingdom. Other examples include Mubadala’s investment in British broadband provider CityFibre and acquisition of a stake in Scandinavian-based communications company GlobalConnect along with the deal by PIF that made it the second-largest shareholder of the luxury carmaker Aston Martin. Building bridges with neighbors Although the West continues to be the preferred destination of petrodollars managed by Gulf SWFs, the region’s wealth funds have been moving to diversify their overseas exposure. The Gulf states have been building economic bridges with their poorer neighbors, some of which they once considered adversaries. Three key regional destinations are Egypt, Iraq, and Turkey. Capitalizing on the withdrawal of foreign portfolio investments from Egypt, Saudi PIF last year launched the Saudi Egyptian Investment Company (SEIC) as its leading investment vehicle for acquiring stakes in local companies, with a focus on infrastructure, real-estate development, healthcare, financial services, food and agriculture, and pharmaceuticals. Soon after its establishment, SEIC purchased minority stakes for $1.3 billion in four Egyptian companies. Around the same time, Qatar’s QIA transferred $1 billion to the Central Bank of Egypt as part of a deal to buy stakes in local firms. QIA is reportedly negotiating with Egypt to conclude what could be a landmark investment deal to acquire stakes in seven historic hotels. The UAE’s ADQ, which established an office in Cairo in December 2021, has also taken steps to ramp up its investments in Egypt and support co-investment with The Sovereign Fund of Egypt (TSFE). After a lengthy period of estrangement, a cautious rapprochement between the Gulf states and Iraq appears to be gaining momentum, with clear evidence that Gulf wealth funds are interested in investing there. For example, Qatar QIA has said it plans to invest $5 billion in various sectors in Iraq over the coming years. Additionally, Saudi PIF has created a new unit to target investments in a number of Iraqi industries. The newly formed Saudi-Iraqi Investment Company, with a capital of $3 billion and headquarters in the kingdom, reportedly will seek investment opportunities in infrastructure, mining, agriculture, real estate development, and financial services. Gulf wealth funds, led by ADIA and ADQ, have also been scouting for investment targets in Turkey, amid signs of a political thaw in relations between Abu Dhabi and Ankara. And Turkish President Recep Tayyip Erdoğan is himself visiting the Gulf since July 17, partially in an effort to drum up investment in his country, having reportedly already secured a series of deals worth $50 billion with the UAE. The QIA last year bought a stake in the Eurasia Tunnel company in Istanbul and, more recently, partnered with Turkish firm Esas Private Equity to invest $105 million in Turkish artificial intelligence (AI)-powered marketing firm Insider. Pivoting to Asia Gulf SWFs are increasingly active in Asia, with China, India, and member states of the Association of Southeast Asian Nations (ASEAN) as the major beneficiaries. In addition to hiring specialist teams to study Asian markets, Gulf wealth funds have opened offices in the region — PIF has an office in Hong Kong, while Mubadala and QIA have set up shop in Singapore. The Private Equities Division (PED) of ADIA has deployed dedicated investment teams focused on “China and India-Southeast Asia.” As illustrated in Table 2, Gulf SWF spending targets in Asia span a wide range of sectors, including gaming and e-sports, agribusiness, renewables, and consumer tech and data services.  Recent deals in Asia map onto their overall investment strategies in interesting and important ways. PIF’s acquisitions in gaming and e-sports in Asia are complemented by its more than $3 billion worth of stock purchases in U.S. video game developers. These and other, similar investments aim to accelerate the growth of mobile e-sports, with a particular focus on the kingdom itself — a thriving market of 23.5 million gamers — and serve the broader objective of making Saudi Arabia a global industry hub. The purchase of a minority stake in Olam Agri by the PIF’s Agricultural and Livestock Investment Company (SALIC) serves the latter’s aim of achieving food security for the kingdom and follows other recent deals struck in the food industry, namely in Canada, Brazil, and India. QIA’s new venture, Bodhi Tree, is part of its big push to scale investments in sectors with deep consumer engagement — including media, healthcare, and education — in India and Southeast Asia. Gulf sovereign investors’ appetite for Chinese assets is strong. Yet it is also worth noting that Chinese venture capitalists and local officials are eager to access Gulf SWFs. Local officials from Shenzhen, Guangzhou, and Chengdu as well as the province of Sichuan are seeking to attract Gulf wealth funds to sectors prioritized by Beijing, including semiconductors, biotechnology, new energy, high-tech manufacturing, and infrastructure. These developments signify, in the case of Sino-Saudi ties and China-Gulf relations more broadly, a progression from a trade partnership to a “core investment relationship.” Conclusion Gulf SWFs have accumulated massive assets, developed seasoned teams, and crafted sophisticated investment allocation strategies. Although the region’s funds vary in the size, variety, and scope of their investments, all have become more active and expanded their international footprint in recent years. Gulf SWFs nowadays are not just caretakers of national wealth. They have emerged as a crucial financial resource for present and future needs and are an increasingly important tool for exerting their countries’ political power, both at home and abroad. Gulf states are using the latest windfall to serve not one, but multiple purposes. These include investing in industries of the future, in some cases preparing for the global energy transition, as well as increasing visibility, strengthening cross-border partnerships, erecting local platforms in underdeveloped sectors, and building national champions. The current phase of Gulf SWF dealmaking is marked not only by the funds’ expanding global footprint and growing influence, but by their mounting responsibilities. Most of the Gulf’s wealth funds today are asked to perform financially as well as create jobs, propel the domestic economy, contribute to decarbonization goals, and more. Aside from these responsibilities, Gulf SWFs have lately been exhibiting an increasing appetite for risk. The risks they face should not be minimized, and they include a track record marred by several big bets that underperformed, growing protectionism that threatens to curb inward investment, and the risk of getting caught in the escalating tensions over technology between the U.S. and China. Nevertheless, the ability of Gulf SWFs to surmount these challenges should not be underestimated. For despite being associated with their most eye-catching gambits in sport, Gulf sovereign funds have become sophisticated and flexible investors.

Egypt faces an economic crisis that risks fuelling unrest. The International Monetary Fund demands reforms in return for loans, while the authorities seek to broaden their base through a much-criticised national dialogue. Foreign partners should cautiously support this balancing act to enhance the country’s stability.  Egypt is in the midst of a profound economic crisis that threatens to disrupt its domestic, economic and foreign policies – deepening public disenchantment and potentially fuelling social unrest. The war in Ukraine has exacerbated this predicament: its effects on the global economy have exposed Egypt’s longstanding dependence on fuel and food imports, which have become too expensive for the country to afford, as well as short-term foreign financing, which has also become more costly. The resulting imbalance has led to the currency’s devaluation and an inflation spike that is hitting the middle and working classes especially hard. Egypt has gone through economic troughs before, but today’s woes are different, and both the government and its creditors are responding in kind. Instead of providing an unconditional bailout, the country’s Gulf partners are working with the International Monetary Fund (IMF) – which has already loaned the government $3 billion – to press Cairo to undertake structural reforms. These include slowing down government-run infrastructure projects and reducing military-owned companies’ holdings. Both moves, while important for the country’s long-term economic health, will cause considerable pain for many of President Abdelfattah al-Sisi’s supporters. If the hurt is too great and too widespread, it could bring with it the possibility of political instability.  The authorities are clearly worried. Their decision to launch a national dialogue with civil society and opposition forces reflects a desire to broaden their base of support as the economic situation goes from bad to worse – although activists worry the government is now rethinking the initiative.  Against this backdrop, the role for bilateral partners and multilateral institutions will be to press Cairo for overdue reforms, both economic and political, while keeping an eye on the social impact of structural adjustments and calibrating their requests to avoid fuelling instability in what remains an influential and strategically important state. Economic Vulnerabilities ExposedAfter holding up better than many experts expected during the COVID-19 pandemic, Egypt’s economy has suffered a body blow as a result of Russia’s war in Ukraine.  The crisis built up over the course of 2022 and snowballed at the start of 2023. The exchange rate began falling on 4 January, reaching a low of 32 Egyptian pounds to the U.S. dollar on 11 January before stabilising at around 30. (Up until March 2022, the pound was trading at around fifteen to the dollar.) This major downward adjustment in the exchange rate is the third in the past year, and foreign investors expect further declines. The devaluation has caused a spike in inflation, which reached 31.9 per cent in February year on year, up from 25.8 per cent in January. Food prices rose by 61.8 per cent year on year, with poultry, pasta, dairy and red meat prices increasing faster than others. These developments have had a significant impact on the population, with many middle- and working-class Egyptians reportedly holding down several jobs to make ends meet, and changing their diets to replace animal proteins with cheaper options. The crisis has a history that stretches back years. Since President Sisi took power in 2013, the government has pursued an economic model focused on government-run infrastructure projects funded by debt financing, both foreign and domestic, and led by military-owned companies. These firms came to dominate many sectors, while crony capitalists associated with President Husni Mubarak – who ruled for 30 years before being ousted amid Egypt’s 2011 popular uprising – lost clout and private businesses were crowded out. This arrangement reflected Sisi’s statist world view, secured for him the army’s political loyalty and supported a modest economic expansion. It failed, however, to reduce unemployment, while exacerbating poverty and external imbalances.  When COVID-19 hit in 2020, domestic observers and international investors were concerned that it would expose Egypt’s vulnerabilities. But while tourism virtually disappeared, and business activity stagnated, the country was able to weather the pandemic’s impact. Attracted by high returns, foreign investors flocked to Egypt’s treasury bills, and remittances from Egyptians abroad also went up. These inflows helped Cairo temporarily finance its current account and budget deficits and supported local incomes.  Instead, it was the Ukraine war that accelerated a major economic crisis. Russia’s February 2022 invasion drove up commodity prices and thus Egypt’s already sizeable import bill, showing just how heavily the country relies on purchases of fuel and cereals from abroad. The country’s foreign reserves dwindled. The government’s attempts to curb imports failed, and soon investors began to doubt its ability to defend the managed exchange rate, leading to a portfolio outflow of around $20 billion between January and September 2022. Foreign reserves dropped even further, reaching little more than three months of imports in July 2022 (down from 6.8 months one year earlier).  Given exchange rate devaluations and rising debt servicing costs, Cairo will now struggle to pay its debts. With investors pulling out and a structural current account deficit, the authorities had to let the exchange rate decline. In turn, the Central Bank hiked interest rates to contain the resulting inflation and limit capital outflows. The higher rates and lower currency value mean that debt servicing is set to explode. The 2023-2024 budget anticipates that repayments will absorb 56 per cent of total government spending. This debt burden, according to a regional investment professional, is the main reason why Egypt watchers are sounding the alarm. A Delicate Balancing ActAs the economic outlook deteriorated over the course of 2022, Cairo sought assistance from the IMF. At first, Egypt requested a $12 billion loan, but it was unable to come to terms with the Fund. Instead, in December 2022 the IMF approved and Egypt accepted a less ambitious $3 billion package over 46 months. It spelled out a list of unusually detailed measures Cairo would have to take in order to qualify, identifying a “permanent shift to a flexible exchange rate” as the top priority.  In effect, the Fund was requiring Egypt to devalue its currency – a difficult demand of Cairo, given its political sensitivity. According to an international official, the Egyptian government saw a strong pound as a sign of national prestige and a way of managing external debt levels, inflation and the cost of key imports, including building materials, for military-owned firms. But the IMF correctly saw that artificially high currency value was crippling the export sector, widening the external account deficit and boosting demand for dollars on the black market. These issues in turn exacerbated the shortage of foreign reserves, as Egyptians anticipated that the government would lower the pound’s value sooner or later. While the devaluation has temporarily alleviated hard currency liquidity problems as Egyptian officials have moved toward full flotation of the pound, there are signs that they continue to manage its value against the IMF’s wishes. The other reforms negotiated with the IMF could also prove tricky. Fiscal austerity measures and the phasing-out of fuel price subsidies risk stirring frustration among the middle and working classes. The IMF’s request that Cairo slow down infrastructure projects, in order to reduce pressure on external accounts and inflation, is a challenge to one of President Sisi’s core policies and sources of domestic support. In January, the president reiterated the importance of these projects for economic development, but international financial officials are serious about this point: they have indicated that they are ready to make public statements if Egypt fails to comply. As Cairo remains under scrutiny from investors and rating agencies, any public criticism from the IMF could deepen market scepticism about its commitment to reform and prove costly for Egypt’s finances.  Still, the creditor-driven policy change that is arguably the most controversial for Sisi and his core constituencies concerns divestiture from state- and military-owned companies. This measure requires the authorities to set clear criteria for government intervention in the economy, increase transparency around public procurement processes, privatise non-strategic firms, and end tax exemptions and other advantages for these enterprises. The goal is to reduce the government and military footprint in the economy and bring in much-needed foreign investment. To pre-empt resistance within the state and security apparatus, the IMF secured the president’s official endorsement of the measure.  Even so, it may not work. The military’s opposition to these reforms and the difficulties associated with such privatisations risk derailing the IMF deal and, with it, the broader effort to restore confidence in the Egyptian government’s stewardship of the economy. Some observers argue that the president’s endorsement, along with the uncharacteristic detail of the loan document negotiated with Cairo, as well as international alignment behind the deal (discussed below), will make it hard for Egypt to shirk its commitments. But in January, despite the IMF agreement, the president signed a decree allocating more land to the armed forces for commercial purposes – perhaps a signal of more defiance to come. The IMF did not react officially to this measure, although it could choose to do so in the forthcoming review.  Some observers also doubt the feasibility of privatising army-run and army-linked ventures because of the military’s privileged place in Egyptian state and society. Among other things, due diligence on these companies, ie, the standard examination of a company’s legal and financial records by prospective buyers, is nearly impossible given the lack of full transparency about their economic health.  While there is broad international backing for these reforms, they entail a degree of risk for the Egyptian government. The slowdown in infrastructure projects and the state divestment policy could risk upsetting the president’s relationship with his core constituencies – especially the military – which benefited greatly from the arrangements that the reforms are intended to replace. In addition, fiscal austerity measures, subsidy reform and further devaluations – measures the IMF also insists upon – are likely to erode incomes throughout society. As the effects of these measures ripple through the economy, there is some danger that military and public disenchantment could become volatile and destabilising.  International Alignment behind the IMF DealEgypt’s international partners are generally supportive of the IMF reform program, but some have expressed concern to Crisis Group about the potential for the more stringent measures to cause political instability and related phenomena, especially an increase in irregular migration. Publicly, Western officials fully back the IMF scheme, saying there is no alternative, but they may not all be on exactly the same page. In private conversations with Crisis Group, U.S. diplomats voiced worry that European governments may be pressuring the Fund to water down its demands because of the instability risk. An Egyptian observer noted to Crisis Group that, unlike for the U.S., “Egypt is really too big to fail from Europe’s perspective”.  Gulf countries are the other major variable in this equation, given their huge treasuries and previous support for Egypt. Following the popular protests and military coup that deposed Egypt’s Muslim Brotherhood president, Mohamed Morsi, in July 2013, Egypt’s Gulf backers, Saudi Arabia, the United Arab Emirates (UAE) and Kuwait, quickly pledged $12 billion to help stabilise the country. The aid consisted of long-term deposits with the Central Bank and direct grants, much of which came in the form of transfers of oil products. Since 2013, however, relations between Cairo and Gulf capitals – including Riyadh and Abu Dhabi – have been tense and marked by mutual disappointment.  The Gulf countries are vexed by Egypt’s poor economic performance and resistance to financial reform, as well as by its regional policy, which has at times run counter to their priorities. Egypt, the most populous Middle Eastern country and one accustomed to a leadership role in Arab affairs, bristles at what it sees as the Gulf monarchies’ heavy-handed attempts to dictate its policymaking. It is keen to hew to an independent line. While Egypt found common cause with its Gulf patrons when they feuded with Qatar from 2017 to 2021, it also conspicuously refused to deploy its forces in support of the Saudi-led military intervention in Yemen and declined to get behind the Gulf effort to topple Bashar al-Assad in Syria. Egypt has also avoided entangling itself in the Gulf’s strategic competition with Iran. Even where Egypt has worked in partnership with the Gulf, as it did with the UAE in Libya, the cooperation has produced friction. Egypt and the UAE have found themselves in effect aligned with opposing camps in the current fighting in Sudan, with Cairo supporting the Sudanese army, led by General Abdel Fattah al-Burhan, and Abu Dhabi siding with the paramilitary Rapid Support Forces, under the command of Mohamed “Hemedti” Hamdan Dagalo. Nonetheless, Egypt now needs Gulf financing to plug its external deficit. The IMF anticipates that its $3 billion loan will be complemented by an additional $14 billion from a variety of international and regional partners. In particular, the IMF program is predicated on Gulf countries contributing $10 billion over the next five years, on top of their pledge to roll over $28 billion in deposits with Egypt’s central bank. According to a regional bank official speaking with Crisis Group, the IMF agreement will only afford durable relief if it is coupled with Gulf support.  But the Gulf countries have become more demanding creditors. In addition to the frustrations enumerated above, they are confronting the demands of their own ambitious national development plans, which means diminished appetite to bail out Cairo. While Kuwait, Saudi Arabia, the UAE and Qatar deposited $13 billion in Egypt’s central bank to help Cairo absorb the immediate economic shocks following Russia’s invasion of Ukraine, over the past months the Gulf has reassessed its approach. As a Gulf official told Crisis Group, “We aren’t prepared to help those who are unwilling to help themselves. And even if we were willing, Egypt’s needs are massive. None of us really has that kind of firepower any longer”. Thus, unlike in previous crises, Gulf states now demand public assets in return for their financial backing. This new policy has led to Gulf sovereign wealth funds buying minority stakes in Egyptian firms that they could sell at a profit at a later stage. It has also created frictions with Cairo over these assets’ value as the Gulf puts a premium on return on investment, as opposed to thinking primarily about how best to support Egypt. According to several sources, in November 2022 Saudi Arabia’s Public Investment Fund suspended its plans to buy out United Bank. Egypt insisted on setting the asset price in dollars, rather than in pounds, but the Saudis refused, hoping that further devaluations could reduce its dollar price.  These tensions have spilled over into relations between Cairo and its Gulf backers. Between January and February, two prominent Saudi Arabian commentators, Turki al-Hamad and Khalid al-Dakhil, wrote pieces criticising Egypt’s inefficient economy and the army’s interference in business, among other things. In response, Egyptian journalist Abdel Razek Tawfiq published an aggressive article in the pro-Sisi Cairo24 and al-Gomhuria outlets decrying what he called the kingdom’s arrogance. Later, President Sisi sought to calm tempers, calling on Egyptians to remember everything their “brothers” have given them. Cairo24 and al-Gomhuria took down Tawfiq’s incendiary article, replacing it with a more conciliatory editorial. While the spat reflected exasperation on both sides, some observers also think Riyadh is irritated by Cairo’s delays in handing over the Red Sea islands Tiran and Sanafir, which it agreed to cede to Saudi Arabia, in the teeth of significant public and security-sector opposition, in 2016. With doubts remaining about the Gulf partners’ willingness to fill gaps in Egypt’s finances, investment bankers suggest that Egypt look for alternative funding avenues. One idea is to securitise future Suez Canal revenues, ie, package these expected earnings into bonds that could be sold to foreign investors. The canal has excellent credit standing and highly predictable revenue flows, making this unorthodox approach compelling to many. But the idea raises concerns about public perceptions and national security, highlighting the lack of clear options in Cairo. The National Dialogue InitiativeThe deteriorating economic picture also contributed to the president’s surprising decision to initiate a national dialogue with civil society and opposition forces. In April 2022, Sisi called for such a dialogue, with no political group to be excluded, though he later specified that the Muslim Brotherhood would not be allowed to take part.  Egyptian opposition figures saw the move as an attempt to expand the government’s social base before the anticipated economic turbulence and improve its international image as it prepared to seek foreign economic assistance. It suggested a shift from the authorities’ previous approach of closing avenues of political contestation. As Egyptian journalists and Western diplomats pointed out in conversations with Crisis Group, Sisi and the security sector believe that former President Mubarak made the 2011 uprising possible by tolerating the activities of opposition parties, independent media and civil society groups even to the limited extent he did.  Against this backdrop, the Egyptian opposition cautiously welcomed the initiative and tried to set preconditions for its participation. The Civil Democratic Movement, which brings together a collection of secular opposition parties and activists, laid out conditions for its participation in the dialogue. It said the participants must include an equal number of pro- and anti-government figures. It later asked the authorities to release more political detainees as a show of good-will. Another group launched a petition to demand the release of all political prisoners, a halt to media censorship and an end to the use of anti-terror laws for political purposes. An activist with the political opposition told Crisis Group that negotiations have continued over the last two months about when and how to start the dialogue. The activist emphasised, however, that “participation is the only card we have to play, so we have to try to make sure that our few conditions, such as on political prisoners, are met before agreeing to join”. The government’s response to the opposition’s demands has so far been disappointing. Although it has freed some political prisoners, many others remain behind bars. Repression of political and civil society activists and independent journalists goes on, moreover, despite the opposition’s appeals. “We have made clear in our meetings with senior intelligence leaders that there has to be a political decision to stop these arrests or else we will just be stuck in this ongoing cycle”, explained the above-referenced opposition figure.  The dialogue started in May, more than a year after Sisi announced it, but Egyptian activists are sceptical about its chances of success. One close observer noted, “From the inside we almost always don’t see any hope”. This person said the initiative includes credible mediators representing intelligence services, but any momentum is now gone. “It’s a scandal really. It’s been a year now, but they don’t care. It’s clear there has been some sort of setback or shift. Our interactions suggest that they aren’t interested in this initiative moving forward, that they now see this as a potentially dangerous course”. What’s Next?The Egyptian authorities face domestic and international challenges that may require at least a partial restructuring of the country’s longstanding arrangements. In a private conversation with Crisis Group, an Egyptian observer pointed to Lebanon’s debt default and ensuing political crisis as a signpost for the future: “I think people need to reimagine their mental models as to where Egypt is headed, and Lebanon is useful in this respect. The long-term impact of the devaluations is still being underestimated and will take some time to filter through the system. Without trust between the people and their government there really is no natural backstop. Egypt probably won’t get that far, but it’s still useful to go through the exercise”.  While Egypt is very different from Lebanon, the chances that the crisis will force the authorities to review years-old policies are considerable. Indeed, it is already happening. Confronted with severe economic worries, IMF scrutiny and tensions with the Gulf, Cairo has had to make painful concessions, as it did in the sharp devaluation, although it remains unclear whether it will fully abide by its commitments. Whether its international partners will stay lined up behind the IMF is likely to be an important factor.  Against this backdrop, Egypt’s international partners should continue to press for the structural reforms that remain the key priority in creating long-term resilience. Reducing the military’s economic footprint should be a top priority: enterprises currently staffed by soldiers who do not need jobs could become job creators for civilians who do. Likewise, the U.S. and its European allies should consider linking at least some of their future support to progress on the lacklustre national dialogue initiative. While thoroughgoing political liberalisation remains a near-term impossibility, targeted criminal justice and electoral reforms are within reach; a meaningful dialogue could lend them momentum.  At the same time, Egypt’s international partners should approach the situation with some caution, mindful of short-term instability risks stemming from fiscal austerity. In particular, subsidy reform and inflation could contribute to social unrest. They should therefore be prepared to show flexibility, for example regarding spending cuts, which could have devastating effects on the population, and the exchange rate.  In sum, while the Egyptian authorities continue to walk a political and economic tightrope in the coming period, foreign governments and international financial institutions should be prepared to do the same – offering careful and calibrated support to strengthen the country’s long-term resilience and minimising short-term instability risks.

Turkey’s 2023 election is one of the most significant in its hundred-year history. After years of currency crashes, vanishing foreign currency reserves and surging inflation, rethinking economic policy will be a top priority for whoever is eventually sworn in. At the time of writing President Recep Tayyip Erdoğan is claiming victory, but votes are still being counted and a run-off round is looking distinctly possible. Erdoğan and his ruling AKP (Justice and Development Party) came to power in 2002 not long after the previous incumbents’ economic mismanagement had caused a major crisis that sent the lira and stock market plunging. In exchange for an IMF rescue, the outgoing government had introduced reforms such as an independent central bank, banking and finance regulators, taking steps to reduce public deficits and debt, and proper public procurement rules. The AKP wisely stuck to these reforms, which paid handsome dividends. Inflation fell from above 50% in 2001 to single digits within three years. Foreign investment improved significantly, allowing annual economic growth to average 7% from 2002-07. This produced sizeable productivity gains, and benefited large parts of society, significantly reducing inequality. The global financial crisis of 2007-09 caused Turkish exports to collapse, but the country recovered relatively quickly after advanced economies cut their interest rates to almost zero. This encouraged investors to borrow cheaply and put money into emerging markets like Turkey in search of decent returns. Choppy waters The turning point, both politically and economically, came in 2013. Demonstrations in Istanbul against construction activity in Gezi Park, one of the last remaining green areas in the city, quickly turned into a nationwide movement against the government’s growing authoritarianism. Erdoğan responded with a crackdown, deploying riot police and detaining hundreds of protesters. This would become a defining characteristic of his regime, permeating through to all other aspects of governance. Around the same time, international investors began pulling back from emerging markets as the US Federal Reserve started tightening monetary policy. There have been several cycles of loosening and tightening since then, but the money hasn’t returned to Turkey. Foreign ownership of Turkish government bonds has fallen from 25% in May 2013 to below 1% in 2023. Similarly, investors have pulled out more than US$7 billion (£5.6 billion) from the Turkish stock market. Investor concerns grew worse after a referendum in 2017 created an executive presidency that bestowed enormous powers on Erdoğan. He has used this to the full, effectively reducing most institutions to independent entities only on paper. The central bank of Turkey is a case in point. As inflationary pressures started to mount in 2021, and unlike almost every other central bank, it cut interest rates sharply - from 19% to 8.5% today. This pushed inflation to a 24-year high of 84% in August 2022. Erdoğan’s insistence on low interest rates to promote growth has also severely weakened the lira, which is down 80% against the US dollar in the last five years. To add to the problem, Turkey’s imports are much higher than its exports, causing a current account deficit of 6% of GDP. Turkey’s tragic lira: Lira vs US dollar. TradingView To prop up the lira, the authorities have squandered a huge amount of foreign exchange reserves. They have also resorted to swapping agreements with friendly Gulf nations like the United Arab Emirates, in which Turkey has borrowed Emirati dirhams in exchange for lira. But this doesn’t address the underlying problems. As of April 2023, Turkey’s net foreign currency reserves are down to negative US$67 billion. The authorities have been forced to introduce unconventional measures to keep the wheels turning. These have included protecting lira bank deposits against dollar depreciation by promising to make up any losses, requiring exporters to relinquish 40% of their foreign currency earnings, and barring banks from lending to companies with significant foreign currency holdings. What next? A rethink is inevitable after this election, though two very different scenarios are foreseeable. If Erdoğan wins, one would expect some normalisation with the west. Turkey has been difficult over major issues such as Sweden and Finland joining Nato, recently yielding on Finland but continuing to object to Sweden. With the EU the major destination for Turkey’s exports and hence source of hard cash, Ankara’s approach to the west could potentially soften under Erdoğan after the election. On the other hand, the AKP’s election manifesto has not offered any novelty on the economic policy front. It seems very unlikely that Erdoğan would change his stance on low interest rates, in which case the lira is likely to plunge further. Opposition leader Kemal Kilicdaroglu has consistently been ahead in the polls in the run-up to the election and has just been boosted by the withdrawal of one of the other main candidates. An opposition victory, especially if decisive, would allow for a proper reset, most obviously starting with raising interest rates to deal with high inflation. This would maximise foreign investment, boosting economic growth while alleviating the pressure on the lira. This is easier said than done, however. Interest rates might need to rise to 30% to break inflation, which would likely cause a nasty recession. As if that wouldn’t put enough pressure on the government’s finances, there have been various electoral giveaways and costly promises from both sides. Much other spending is also required. The US$50 billion cost of building new homes in regions hit by the two recent earthquakes is just one example. Meanwhile, there has been a significant deterioration in the rule of law, press freedoms and civil liberties. The AKP has relied overly on construction for growth, which has come at the expense of farming, turning a country that was once self-sufficient in food into a major importer. Education and procurement have suffered from endless reforms. Success in any business in Turkey now requires access to the ruling party elite. But if undoing all this damage is going to be arduous, it still matters greatly for the rest of the world. Turkey is a key part of international community, not only as a member of Nato and the G20 but at the crossroads of trade between Asia and Europe. It still has enormous potential, with a young population and dynamic business culture. The results of this election are therefore likely to have ramifications far beyond Turkey’s borders.

Tunisia is beset by deepening political and economic challenges. President Kais Saied is transforming the country’s parliamentary system into an authoritarian presidential one that has become increasingly repressive. Arrests and convictions of opposition politicians have surged. Saied’s aggressive anti-foreigner discourse has fuelled xenophobic sentiment and contributed to a spike in violent attacks against sub-Saharan migrants. Economically, Tunisia is grappling with the fallout of a decade of sluggish growth compounded by a series of economic shocks since 2020. The nation’s public debt has soared, with significant debt repayments looming. As the country tries to deal with mounting financial constraints, its inability to attract foreign loans is further clouding its economic future. Saied now must decide whether to embrace a credit agreement with the International Monetary Fund (IMF) or potentially default on Tunisia’s foreign debt. Against this backdrop, the EU and, in particular, Italy have a pivotal role to play. They can either help steer Tunisia toward a more stable economic future or watch it descend into chaos. A worrying political and economic outlook While the protests that led to the Arab Spring began in Tunisia, the promise of a more democratic and egalitarian society in the North African country did not come to fruition. To be sure, the protests did lead to the overthrow of autocratic Tunisian President Zine El Abidine Ben Ali in 2011. Moreover, Tunisia was the sole country to emerge from the regional uprisings with a new democracy. That experiment, however, foundered after Saied – who was elected to the presidency in 2019 – seized a monopoly on power in July 2021. Over the past two years, he has replaced the country’s semi-parliamentary system with one lacking checks and balances, consolidating power in his hands. People’s fear of repression resurfaced. Since mid-February 2023, arrests and convictions of public figures, especially politicians, have accelerated, undermining a disorganised and divided opposition. Meanwhile, large sections of the population have focused on survival in the face of a worsening economic crisis and have increasingly disengaged from politics. President Saied has attempted to shore up his dwindling support by pushing nationalist policies. He has jailed members of the opposition in a move that seems aimed at bolstering his standing with swathes of the public who are frustrated with the former political class. Saied has also xenophobically accused sub-Saharan migrants of conspiring to change Tunisia’s identity, creating a climate conducive to repeated violent attacks against a vulnerable minority. Economically, the country is still reeling from a decade of slow growth. After the 2011 uprising, the Tunisian government combatted rising unemployment in part by hiring hundreds of thousands of civil servants. Today, the public sector is the country’s largest employer and half of the annual budget is spent on the public payroll. At the same time, public and private investment in infrastructure, research and other growth-enhancing spending items has dropped significantly, leading to a sharp decline in GDP growth. External factors also chipped away at the Tunisian economy. The Covid-19 pandemic brought a collapse in tourism. Russia’s invasion of Ukraine, meanwhile, led to a spike in commodity prices. Surging inflation – particularly in food prices – and shortages of basic goods have eroded Tunisian living standards. Against this backdrop, Tunisia’s public debt has skyrocketed, reaching nearly 90 per cent of GDP in 2022, with substantial financing requirements needed to maintain current levels of spending. Credit rating agencies have downgraded the country as it struggles to balance its budget. The latest downgrade took place in June, when Fitch lowered Tunisia’s rating to CCC- (well into junk status territory). As a result, access to international financial markets has been virtually shut off, given the prohibitive interest rates (over 20 per cent) that this sovereign rating would entail. While the current account deficit has shrunk and foreign currency liquidity has improved over the past few months because of an uptick in tourism revenues and remittances from Tunisians working abroad, servicing its external debt will continue to be extremely challenging. With 2.6 billion US dollars in repayments scheduled for 2024 (including a euro-denominated bond maturing in February, equivalent to 900 million US dollars), it is still unclear how the government will be able to secure sufficient funds to meet these liabilities. The 2024 budget draft anticipates loans from Algeria and Saudi Arabia, as well as other, as yet unknown, external sources. The IMF deal and the role of the EU Despite these financing difficulties, Tunisia has not yet signed a deal with the IMF. In October 2022, Tunisia and the IMF agreed on the terms of a 48-month, 1.9 billion US dollar loan aimed at stabilising the economy, but Saied rejected the deal, fearing social unrest from cutting subsidies and reducing the public sector wage bill. The IMF board postponed the deal in response. Since then, the president has remained steadfast in his rejection of what he calls “foreign diktats” from the IMF and Western states. The Europeans – in particular, Italy – have pressed the IMF to reopen negotiations and offered incentives to persuade Saied to accept a revised deal, despite their internal divisions on how to treat Tunisia. They are applying this pressure largely because the economic fallout from a debt default could further increase the number of people – both nationals and migrants from sub-Saharan Africa – leaving Tunisia for Europe. While some EU member states, such as Germany, have taken a more critical stance towards Kais Saied’s authoritarian turn, eventually the migration, security and economic interests of Italy and, to an extent, France seem to have prevailed within the EU. Due to its geographic proximity to Tunisia, Italy would receive a majority of a migration influx, at least initially. For this reason, the Italian government has reiterated its concerns over Tunisia’s economic situation on multiple occasions, while refraining from expressing any criticism of the country’s increasingly authoritarian turn and violent attacks against sub-Saharan migrants. The EU has offered incentives to Tunisia to accept a deal with the IMF. After Giorgia Meloni and later EU Commission President Ursula von der Leyen and Dutch Prime Minister Mark Rutte visited Tunis in June, they unveiled 900 million euros in macro-financial assistance conditioned on a deal with the IMF and 105 million euros for joint cooperation on border management and anti-smuggling measures to reduce irregular migration to Europe. Despite the sweeteners the EU offered, the likelihood of a revised deal between Tunisia and the IMF has receded. In August, Saied removed the head of government, Najla Bouden, who had been directly involved in the negotiations with the IMF, and replaced her with a more pliant official, Ahmed Hanachi. Since then, Tunisia hasn’t put forward a revised proposal to the IMF. In October, the president reinforced his position by sacking Economy Minister Samir Saied after the latter claimed that a deal with the IMF would send a reassuring message to Tunisia’s foreign creditors. Tunisia has also rejected part of the funds offered by the EU. On 3 October, Saied rejected the first tranche of EU financial help, declaring that this “derisory” amount ran counter to the agreement between the two parties and was just “charity”. The repercussions of this refusal on the rest of the EU’s financial incentives are unclear. A fork in the road There are obvious reasons for Tunisia to secure a loan from the IMF. It would send a reassuring signal to Tunisia’s foreign partners and creditors. It could encourage Gulf Arab states to provide additional financial support in the form of government loans and deposits with the central bank, and investment in the economy. That would provide the Tunisian government with breathing space. But implementation of reforms required under the loan’s terms could set off anti-government protests by the country’s main trade union (the UGTT) and, in turn, government-led repression. To forestall such a scenario, the president himself could incite protests and riots by using nationalist rhetoric to scapegoat the IMF for any unpopular measures required by the loan. A no-agreement scenario, however, would have much more severe and potentially even catastrophic consequences. Without a loan, Tunisia would struggle to find alternative funding sources to meet its scheduled foreign debt repayments. Saied could then resort to a politically motivated strategic default, followed by negotiations to restructure the country’s external debt. Some Tunisian economists and supporters of the president are advocating for this approach: they say that declaring bankruptcy on external debt would allow the government to hammer out a restructuring plan with creditors and argue that the impact on the economy would be fairly limited, thanks to Tunisia’s capital controls and its banking sector’s low exposure to foreign bonds. But this approach carries great risk, as a foreign debt bankruptcy could lead to a run on Tunisian banks and destabilise the financial sector. In addition, the government could end the central bank’s independence to print money, fuelling an inflation spiral. Politically, a default and its socio-economic repercussions could open the door to a dangerous spiral of social and criminal violence. It could also boost irregular outward migration, with Tunisians fleeing the growing political and economic chaos. Widespread protests may erupt against the disastrous social effects of the president’s failed economic policy, prompting a violent response targeting businesspeople and political opponents for their alleged links to the West, as well as Western diplomats and the local Jewish community. Balancing economic support and respect for rights In light of these two possible scenarios, the EU and Italy should continue to encourage the Tunisian authorities to negotiate with the IMF, which remains the least politically and economically destabilising option on the table for Tunisia, if carried out with due care. At a minimum, a revised deal should include reduced expenditure cuts compared with the earlier proposal, particularly in the context of energy subsidies. At the same time, Italy and the EU should exercise caution and avoid turning their understandable concerns about Tunisia’s stability into a blank check for the president. In particular, they should press the authorities to rein in the abuses perpetrated against migrants and stave off potential attacks against opposition politicians, businesspeople and the local Jewish community. Aside from humanitarian considerations, this would serve Italy’s overarching goal of curbing migration: after all, attacks against the sub-Saharan minority have spurred outward migration, a trend that would accelerate if government persecution becomes even more severe. While supporting the deal, however, the EU and Italy should also prepare for the possibility of Tunisia continuing to reject it and declaring a foreign debt default. In such a scenario, the EU should be prepared to offer emergency financing to the country to help with imports of wheat, medicines and fuel. In doing so, the EU should synchronise the positions of member states to prevent conflicting agendas. Schisms have already emerged between countries like Germany and Italy over how to address Tunisia’s authoritarian drift. For this reason, acknowledgement of the importance of internal stability could provide a common ground in overcoming divisions and helping prevent a new wave of anti-migrant violence.