For now, the Egyptian government's firm grip on power and plans to increase social spending will likely keep the country's deteriorating economic situation from spiraling into mass unrest. But if the fallout from the Ukraine crisis continues to deplete its finances, Cairo may eventually be forced to enact painful austerity measures, which could raise the risk of disruptive protests. Among developing countries, Egypt has been exceptionally vulnerable to the commodity price shocks resulting from Russia's ongoing war in Ukraine. On Aug. 1, Egypt's currency hit a near-record low, with the exchange rate slipping to 19 Egyptian pounds per one U.S. dollar. Overall inflation in Egypt, including food prices, decreased slightly in June from the previous month due to slightly eased food prices, but consumer prices in the country are also still higher than they were before Russian troops began invading Ukraine in February. The combined impact of high inflation and the recent currency devaluation has increased economic strain for Egyptians across social classes. 

• On March 21, Egypt's central bank devalued the Egyptian pound to make exports more competitive and protect the country's foreign currency reserves. But the devaluation also increased the cost of living for Egyptian households, which expressed increased levels of economic anxiety during the first half of the year, according to anecdotal evidence and media reports. 
• Egypt's core inflation increased to 14.6% in June, up from 13.3% in May. This is the highest core inflation Egypt has seen since 2017. 

Egypt's economy will remain vulnerable so long as the war in Ukraine continues to chip away at Cairo's foreign currency reserves by making imports more expensive, dampening tourism rates and spooking foreign investors. The decline in the Egyptian pound's value has further driven up the cost of imported goods (such as food and fuel), exacerbating the commodity price shocks created by the war in Ukraine. The fallout from the ongoing conflict has also seen fewer Ukrainian, Russian and European tourists visit Egypt in recent months, depriving Cairo of a key source of foreign currency — especially given that before the war, an estimated 30% of tourists who visited Egypt came from Russia and Ukraine. Foreign investors, meanwhile, have withdrawn an estimated $20 billion from the Egyptian market this year amid the uptick in global interest rates. This loss of capital and tourism revenue — along with the increasing cost of imports — has eaten into Egypt's foreign currency reserves, which stood at $33.4 billion at the end of June, down from nearly $41 billion at the end of February.

• Egypt is the world's largest wheat importer. Prior to the war, 80% of the country's wheat imports came from Ukraine and Russia.
• Egypt's dependence on Ukraine and Russia for both imports and tourists has made its economy particularly vulnerable to the disruptions brought on by the conflict. The Middle Eastern nation's reliance on the Russian market, in particular, also likely explains Cairo's neutral stance on the war and refusal to condemn Moscow's aggression against Kyiv. 

The growing financial toll on Egyptian households is increasing anti-government anger, though disruptive protests remain unlikely for now due to the country's strong security apparatus. It remains unlikely that growing economic grievances will stoke unruly demonstrations thanks to the high likelihood of security forces breaking up any unapproved gatherings. Since the Arab Spring, Egyptians have also had an overall lower appetite for large displays of popular unrest. But even small hikes in the cost of living carry the risk of stoking anti-government dissent in Egypt, where more than a quarter (30%) of the population already lives below the poverty line. Indeed, in recent months, Egyptians have increasingly taken to social media to express anger at their government — particularly over the rising price of public transportation fares, fuel, food and other basic goods. Should the ongoing war in Ukraine continue to batter Egypt's economy, there's a chance (albeit slim) that this public anger could eventually reach levels that exceed the government's ability to contain it via Cairo's usual methods.

• On July 13, the Egyptian government raised fuel prices for petrol and diesel, which then prompted Egypt's public transportation authority to increase bus ticket prices. In response, the hashtag #fuel quickly went viral on Egyptian twitter amid angry posts over the price hikes.

Cairo's plans to expand cash transfer programs and maintain subsidies for essential goods will also mitigate the risk of unrest by helping assuage Egyptians' economic grievances in the near term. The Egyptian government's latest budget shows it's preparing for an extended period of increased government spending to support the population through the current bout of economic uncertainty. The budget sets aside funds for Egyptians who are eligible to receive cash handouts through the country's Karama and Takaful programs. Cairo also plans to continue to subsidize certain goods to help offset the impact of rising commodity prices on Egyptian consumers. Prior to the Ukraine crisis, the government was considering scaling back some of these subsidies (including those for bread, water and electricity), which weigh heavily on state finances. But within the current economic climate, the Egyptian government will try to avoid such reforms, knowing that placing any additional stress on already struggling Egyptians would risk further stoking public anger. This is especially true when it comes to scaling back food subsidies, which are exceptionally politically sensitive because they help keep the most vulnerable Egyptians from going hungry. 

• In May, Egyptian Prime Minister Mostafa Madbouly said the Ukraine crisis would cost Egypt at least $24.6 billion. A fair amount of that anticipated cost included increased spending on social programs to help Egyptians cope with the rising cost of living.
• Government spending for the 2022-2023 year is slated to rise 15% compared with the previous year. 
• Since 1988, about two-thirds of Egypt's population has been able to buy subsidized bread loaves for just 5 Egyptian piasters (or about a third of a U.S. cent). This costs the government 48 billion Egyptian pounds (or roughly $3 billion) a year.

If Egypt's economic depression does not ease in the coming months, Cairo will likely need external funds to bolster government spending, which will likely require new austerity measures that could increase the strain on Egyptian households. If the current economic depression persists beyond the end of 2022, the impact may leave Egypt's government little choice but to take out more debt in order to keep its coffers from running dry. This scenario would likely see Cairo lobby for financial aid from nearby Arab Gulf states, as well as external funding from institutions like the International Monetary Fund (IMF). Investments from the United Arab Emirates into Egyptian companies, in particular, could help buoy Cairo's accelerating push to privatize government-owned companies, including those in Egypt's defense sector. If Egypt remains committed to such privatization projects, it could help garner the goodwill of the IMF, which has encouraged Egypt to build a more robust private sector. Finalizing any agreement with the IMF, however, would still require Cairo to agree to economic reforms, including likely unpopular austerity measures. Although ongoing talks between the IMF and Egypt indicate some divide between the two parties on the pace and scope of such reforms, the current al-Sisi administration has before shown its willingness to increase taxes and cut subsidies, despite knowing the financial toll such measures would have on Egyptian households. If the Ukraine crisis continues to drain its finances, there's a chance Cairo could impose such measures again in order to unlock more IMF funding. 

• The IMF and Egypt have been in negotiations since March. In a note released July 26 evaluating the 2020 $5.2 billion standby loan program between the fund and the government of Egypt, the IMF said that Egypt must make ''decisive progress'' on fiscal and structural reforms in order to ''boost the economy's competitiveness, improve governance, and strengthen its resilience against shocks,'' and ultimately to receive more financial support from the fund.