When the government recently announced that the current programme with the International Monetary Fund (IMF) would be the last and that future economic programmes would be designed domestically, it marked more than a routine policy statement.
Instead, the announcement was a symbolic turning point. After years of reliance on external prescriptions, it signalled a desire to take ownership of our own economic path. It also raised an important question: what has gone wrong in the long relationship between Egypt and the IMF, and, more broadly, between debtor countries and the institution originally founded to promote stability and prosperity?
The time has come not to accuse, but to learn.
Egypt’s inflation in recent years has been predominantly supply-driven. Prices have surged not because households were consuming excessively or because the economy was overheating, but because of external and structural pressures: currency depreciation, adjustments in energy prices, and bottlenecks in supply chains. These are cost-push dynamics and are distinct from demand-driven inflation, which emerges when demand outpaces an economy’s productive capacity.
In theory, raising interest rates is not the appropriate cure for supply-side inflation. Higher rates do not create more food, lower import costs, or expand productive capacity. Yet the IMF has consistently recommended that Egypt raise interest rates sharply.
The reasoning has less to do with solving inflation at its source and more to do with containing secondary effects, such as wage-price spirals, while signalling to financial markets that the pound will be defended.
In effect, the IMF advice is about protecting credibility and repayment capacity rather than tackling the structural drivers of inflation.
Here lies one of the clearest ways in which the IMF’s current policies depart from its original objectives. The British economist John Maynard Keynes who helped to design the Bretton Woods system and the IMF itself after World War II is one of the most influential figures in the history of economic thought.
Keynes placed employment, investment, and long-term growth at the heart of macroeconomic management. He believed low interest rates were essential to stimulate investment and sustain employment, ensuring that wealth flowed into productive activity rather than idle financial accumulation.
His vision was captured in his call for the “euthanasia of the rentier”, by which he meant reducing the outsized power of financial wealth-holders over real economic life. If Keynes were alive today, he would likely view repeated interest rate hikes in countries like Egypt as treating the symptoms — such as capital flight and fragile confidence — rather than the disease: insufficient productive capacity, reliance on imports, and vulnerability to external shocks.
The same divergence is visible in the IMF’s advice on exchange rates. Keynes regarded exchange-rate management as a tool for employment and stability and not an end in itself. In practice today, however, exchange-rate flexibility or devaluation is often treated as a policy goal.
The rationale is that a weaker currency will improve competitiveness and reassure markets that distortions are being corrected. But in debtor countries, this frequently translates into imported inflation, eroded real incomes, and widespread social hardship.
Once again, the means, in this case exchange-rate adjustment, overshadow the ultimate ends of development and stability.
This distinction between ends and means is critical. Keynes insisted that policy tools such as interest rates, fiscal measures, and exchange rates must never be confused with the true goals of policy such as employment, growth, and stability. The IMF’s current framework often blurs this distinction, risking the elevation of austerity and monetary tightening into ends in themselves.
How did this divergence arise? Three broad shifts explain the change in IMF practice. First, the burden of adjustment in the global economy has fallen disproportionately on deficit countries. Surplus countries, which Keynes sought to discipline through his proposed “international clearing union”, have largely escaped responsibility.
Second, the intellectual framework of the IMF shifted during the 1970s and 1980s, moving away from Keynesian pragmatism towards monetarist orthodoxy that prioritised price stability and fiscal restraint above all else. Third, financial globalisation has made market credibility the overriding concern, forcing policymakers to focus more on satisfying creditors than on promoting domestic prosperity.
The Keynesian argument remains viable, but it must be adapted for today’s circumstances. Keynes wrote in an era of limited capital mobility and greater national policy autonomy. Today, with globalised finance, rapid capital flows, and independent central banks, the space for traditional Keynesian policies is narrower. Yet, the principles remain sound.
Interest rates should be instruments for fostering investment and employment and not blunt tools for attracting speculative inflows. Exchange rates should be managed to support development and not left to dictate the pace of economic and social change. The toolkit must evolve, but the target — sustainable growth, employment, and stability — remains the same.
It is therefore correct to conclude that the IMF’s current policies often depart from its original objectives. They no longer fully serve the goals of long-term employment, development, and stability. Instead, they prioritise short-term repayment capacity and market credibility.
This pattern has been repeated across the globe. In Latin America during the 1980s debt crisis, IMF programmes stabilised finances but created a “lost decade” of development. In Asia during the late 1990s financial crisis, IMF programmes pushed fiscal tightening and rapid liberalisation, which many now acknowledge deepened economic distress. In Greece after 2010, IMF-backed austerity stabilised debt markets but at the cost of mass unemployment and prolonged depression.
These examples illustrate how far the institution has drifted from Keynes’s vision of protecting employment and enabling growth.
Who, then, is responsible for this cycle? The answer lies on three levels. The IMF bears the responsibility for designing programmes that prioritise creditors and financial markets at the expense of long-term development. Debtor countries also share the responsibility for policy missteps, weak institutions, and the repeated reliance on IMF support despite knowing the economic and social costs. And the global financial system itself perpetuates the cycle, channelling adjustment pressures onto vulnerable economies while rewarding speculative capital that can move across borders instantly.
This imbalance traps both debtor countries and the IMF in a cycle of crisis and response, leaving little space for the cooperative mechanisms Keynes had imagined.
That is why the government’s announcement that the present one will be the last IMF programme must be taken seriously, not as a rejection of external cooperation, but as a commitment to learning from the past. The lesson is not that external support has no role, but that such support should work in the service of real stability and development, not simply financial appearances. The true Keynesian insight is that tools must never be confused with targets, and stability must serve growth and development.
Egypt now has an opportunity to turn the page. By designing a homegrown programme that learns from these lessons, the country can aim for policies that address the structural roots of inflation, strengthen productive capacity, and build resilience against external shocks.
External cooperation will remain important, but it should complement and not dictate national strategy. If this opportunity is seized, the failures of the past can become the foundation for a stronger and more sustainable future. Asking “what went wrong” will then no longer be a backward-looking exercise, but a guide to doing better in the future.
* A version of this article appears in print in the 2 October, 2025 edition of Al-Ahram Weekly
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