Arab FinanceThe statements of Prime Minister Dr Mustafa Madbouly“about what he called”War economyMany citizens and public opinion in Egypt have many questions about the meaning of this term and its effects, especially in light of the geopolitical tensions that the region is experiencing. What does this term mean, and why does the state resort to this type of economy?
Prime Minister Dr. Mostafa Madbouly said during a press conference last week: “If the region is exposed to a regional war, there will be severe repercussions, and the Egyptian state will therefore be forced to deal with what can be described as a (war economy),” stressing “the state’s interest in how to ensure… “On the continuation, stability and sustainability of providing goods, services and infrastructure to the Egyptian citizen under the current circumstances.”
Madbouly pointed out that even in historical periods, in which the state was involved in direct wars, there was a clear direction of events, and the possibility of planning based on data already existing on the ground. But in light of the current stage, “the situation is changing daily, as the region lives in a state of extreme uncertainty, which has made the government work on scenarios that are constantly being changed according to current developments.”
Experts who spoke to Arab Finance confirmed that the concept of the war economy is resorted to by the state when it enters a war directly, while there are some precautionary measures that are taken to prepare for some of the expected scenarios in this matter.
War economy It requires a change in the budget structure General state
For his part, Dr. Fakhri Al-Feki, Chairman of the Planning and Budget Committee in the House of Representatives and a former expert at the International Monetary Fund, explained in statements to Arab Finance that the war economy is an internationally known term for about 250 years, as it appeared during the American Civil War and then appeared during the First and Second World Wars.
According to Al-Faqi, Egypt knew this term during the war with Israel between 1967 and 1973.
Al-Fiqi pointed out that the war economy means directing most, if not all, of the state’s resources to the war effort, which requires a change in the structure of the state’s general budget, as well as with regard to the type of productive sectors, while directing the state’s basic resources to defend its capabilities.
Al-Fiqi stressed that implementing the war economy requires the state to intervene directly in a war with another state, and this is not currently the case for Egypt, although there are repercussions that affect the Egyptian economy, such as the war on Gaza or Lebanon, as well as the Israeli conflict with Iran, and these repercussions may affect Egypt. By affecting supply chains, especially fuel, oil and gas, as prices have witnessed increases during the recent period.
Hedging to provide commodities
These geopolitical repercussions and risks also lead to the possibility of affecting the prices of basic commodities such as wheat, which requires precautionary measures so that Egypt is prepared for all scenarios, and therefore matters must be arranged according to Al-Faqi.
Al-Fiqi hinted that Prime Minister Dr. Mostafa Madbouly did not mean the war economy in its known sense, but rather he meant hedging any measures or interactions that might affect the Egyptian economy, such as hedging the provision of strategic goods and the stock of them, especially with the Suez Canal being affected by the war on Gaza, as well as the impact of navigation. In the Red Sea.
He continued: Egypt has the power to protect its national security, and that the Prime Minister may prepare citizens for all scenarios, especially if there is a significant rise in energy prices as a result of the ongoing war in the region, and its effects on the Egyptian economy and supply chains, warning that Egypt has a strategic reserve. Enough basic goods to last more than 6 months.
Egypt is stable and moving towards its development direction
While Dr. Walid Gaballah, an economic expert and member of the Egyptian Society for Economics, Statistics and Legislation, said that economics is one science, but some terms have recently appeared, such as green and blue economics, and other economic terms, pointing out that war is an exceptional circumstance that imposes exceptional measures on the state, and there are a number of International agreements allow the state to suspend some of its obligations in some cases, including war.
Djaballah pointed out that these exceptional measures mean rearranging the aspects of spending because military spending has priority, and for that priority, the spending system is being restored, whether by the government or the people, and he is also invited, meaning “the people,” to give up some of their well-being as a result of this exceptional circumstance, explaining that There is no specific model for the war economy, but it is about focusing on necessities, and directing basic expenses towards defending the state and its capabilities, where war expenses are the priority while luxuries are dispensed with, and all of this depends on the state’s resources and capabilities.
Gaballah explains Prime Minister Mostafa Madbouly’s statement that he does not mean that Egypt is close to declaring a state of war economy, but rather that he means that Egypt is ready for all scenarios, indicating that Egypt is currently a stable country and has a program agreed upon with the International Monetary Fund, and that it has begun its reform project since November. 2016 and is currently moving towards its development direction.
Egypt has secured its needs for major commodities
For her part, Dr. Mona Badir, an economic expert and financial analyst, said that Egypt went through a war economy phase during the 1967 war until 1973 during its war with Israel, and the budget was directed to finance military spending, but she stressed that Egypt is currently not going through a war economy phase because it is not a party to this war. Although there are geopolitical risks affecting it and its resources, such as the effects that emerged as a result of the war on Gaza, and the decline in revenues from the Suez Canal, and although there are sectors that were not greatly affected, such as the tourism sector and remittances from Egyptians working abroad, while it is possible that these geopolitical changes will affect the supplies of… Some food items such as bread and its prices as well as energy prices.
Badir added that if the scope of the war expands, it is expected that oil prices will rise, and in this context, Egypt has secured its needs for basic commodities, noting that major countries such as the United States of America and European countries have an interest in the stability of Egypt as a major country, indicating that Egypt is able to maintain Its stability, noting that there may be possible strict policies in light of the economic reform program agreed upon with the International Monetary Fund, and there will also be rationalization of spending to ease pressures on the balance of payments.
It is noteworthy that the term war economy first appeared during the American Civil War between 1861 and 1865, and then appeared again with World War II, when the then American President Franklin Roosevelt indicated in one of his speeches the necessity of turning to a war economy in the event of the victory of the Axis powers.
The United States is considered among the countries that most applied the concept of the war economy during the First and Second World Wars and the Vietnam War.
The war economy means transforming the national economy in whole or in part to serve the war effort and provide the needs of the armed forces and what they require to fight military battles as well as defend the country.
The war economy relies on a set of laws that allow the state to control all resources and obligate factories to implement fundamental changes to achieve goals and achieve a balance between the general needs of the state, including military needs. It also includes fundamental changes, including taxes.
Egypt implemented the war economy about 57 years ago, specifically in the period from 1967 to 1973, when Dr. Aziz Sedqi, Prime Minister at the time, announced the “battle budget,” which came with the aim of mobilizing and organizing the economy during the war period, with the aim of providing all the needs of the armed forces during the war period and financing resulting requirements.
During the war budget, the government was scheduled to prepare an export and import plan to ensure the provision of the dollar, with a focus on importing from Arab and friendly countries, while working to replace local products as an alternative to imported products, which would contribute to strengthening the national industry and reducing dependence on abroad.
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