On Thursday, the BRICS bloc invited Egypt, along with Argentina, Ethiopia, Iran, Saudi Arabia, and the UAE, to join the bloc starting January 2024 in its first expansion since 2010.
Egypt had officially submitted a request to join the BRICS bloc in June 2023.
As a member of the BRICS bloc, Egypt can seek support from other member states of the bloc to secure US dollars in order to meet shortages in its foreign currency reserves.
"Under the Contingent Reserve Arrangement (CRA) in the BRICS bloc, any member state of the bloc can ask to buy US dollars using their local currency from other member states in the bloc to meet any emergency shortages in dollar reserves in their country,” financial markets expert Ahmed Moati told Ahram Online.
Egypt, like other member states in the BRICS bloc, can also seek aid from other member states in the bloc to reduce its own budget deficits, Moati added.
“BRICS comprises an agreement through which a member state can ask other members of the bloc for financial aid to help lower its budget deficit,” he noted.
In May, Egypt revised its budget deficit estimate to 6.9 percent of GDP in FY2023/2024, up from an earlier estimate of 6.3 percent.
The government attributed the revised figure to hikes in interest rate domestically amid similar hikes in markets globally, increased spending on social protection programmes, and the rising cost of basic commodities such as food and fuel.
BRICS: Big players
The five founding member states of BRICS, Brazil, Russia, India, China, and South Africa, collectively account for 41 percent of the world's population.
These BRICS founding members account for a quarter of the global economy and 16 percent of global trade, according to World Bank figures.
The Egyptian Cabinet's Information and Decision Support Center (IDSC) stressed that joining BRICS will enable Egypt to benefit from constructive cooperation among member states in the bloc in supporting domestic sustainable development efforts.
The IDSC also stressed that the bloc's objective to reduce reliance on the US dollar in international transactions is beneficial for Egypt, which seeks to alleviate pressures on its own foreign exchange reserves.
Egypt has been confronting a shortage in hard currency amid a decline in direct and indirect investments since the start of the war in Ukraine.
Remittances from Egyptian expatriates, a significant source of foreign currency for the country, also declined by 26.1 percent, from $23.6 billion in the first three quarters of FY2021/2022 to $17.5 billion in the same period in FY2022/2023.
In addition, Egypt lost $25 billion of indirect investments in the local debt instruments (aka hot money) which exited the Egyptian market in the spring of 2022 after the US Federal Reserve raised interest rates to control inflation at home.
Beyond hard currency
According to Moati, Egypt's imminent membership in the BRICS will facilitate projects and investments between Egypt and the BRICS member countries.
According to recent data provided by the Egyptian Central Agency for Public Mobilization and Statistics (CAPMAS), BRICS nations' investments in Egypt surged from $610.9 million in FY2020/2021 to $891.2 million in FY2021/2022 – a 45.9 percent increase.
Sarah El-Khishin, Associate Professor of Economics at the British University in Egypt (BUE), told Ahram Online that Egypt's BRICS membership will have a positive impact on trade and foreign direct investment (FDI) and also help restore confidence in the Egyptian economy.
“FDI and trade relations with [BRICS] member countries and other non-member countries will reflect on our foreign currency position and positively impact the confidence in the Egyptian pound. It will also help diversify our foreign currency portfolio through stronger ties with China and Latin American countries,” El-Khishin said.
Egypt has been a member of the BRICS New Development Bank (NDB) since March 2023.
Established in 2015, the NDB is a multilateral development bank aiming to mobilize resources for infrastructure and sustainable development projects in BRICS countries and other emerging markets and developing countries (EMDCs).
A just global financial system
El-Khishin added that she believes that the world needs a more just financial system representing countries more fairly in order to negotiate and align global economic governance.
She said there is also a need to steer capital flows towards the global south and re-orient the global development agenda.
Furthermore, El-Khishin noted that debt and borrowing conditions should be adjusted in favour of emerging economies and that more pressure should be put to re-visit the governance of multilateral development banks (MDBs).
“Egypt and other emerging markets will have stronger representation through joining the BRICS, which will affect the new global economic and financial architecture and create a fairer economic and financial system and more inclusive globalization, thus creating a critical lobbying power towards what is being referred to as “a new Bretton Woods,” added El-Khishin.
In 1944, towards the end of WWII, the United States and its allies established the foundation for a rules-based international financial system in the Bretton Woods Agreement, which was signed at a major conference in New Hampshire, US.
The Bretton Woods agreement paved the way for remarkable economic growth in the subsequent decades after the war.
However, amid ongoing economic crises triggered by the coronavirus pandemic and the Russian-Ukrainian war, various officials worldwide have been calling for "a new Bretton Woods" agreement to solve new problems in the world economic system.