Despite its pervasive anti-Semitism, Egypt remains one of the Jewish state’s most important strategic allies, as demonstrated by the role it played in securing a ceasefire during the most recent round of fighting in Gaza. Thus Jerusalem, as well as Washington, should be worried about the country’s parlous financial situation. David Schenker describes why the Egyptian economy went into “freefall” earlier this year:

Today’s precipitous decline was set in motion nearly a decade ago, when Cairo embarked on an unsustainable spending spree, borrowing money for profligate outlays on weapons, megaprojects, and infrastructure. Making matters worse, during this period the military’s role in the economy dramatically expanded, choking off the private sector and disincentivizing foreign direct investment. The downward trajectory of the most populous Arab country should concern Washington greatly.

The quagmire is deep. Since President Abdel Fattah el-Sisi was elected in 2014, the state’s external debt has more than tripled to nearly $160 billion. This year, 45 percent of Egypt’s budget will be devoted to servicing the national debt. Meanwhile, inflation hovers around 30 percent, and food prices have increased over the past year by more than 60 percent. [Potential] Gulf investors are unlikely to enthusiastically invest in non-controlling interests in opaquely operated—and perhaps overvalued—state-owned enterprises.

Like oil-rich Gulf States, the International Monetary Fund (IMF) is also skeptical about Sisi’s commitment to . . . sideline the military from the Egyptian economy. The first review in the four-year program was slated for March 15, but the IMF has delayed the evaluation—and the disbursal of loan tranches—until Cairo makes progress on privatization.

With a population nearing 110 million, Egypt has been described as “too big to fail.” Hesitant to move the military out of the economy and without its traditional Gulf financial safety net, however, a further deterioration is possible. . . . Notwithstanding the regime’s notorious intolerance for dissent, during a recent visit to Cairo, a number of Egyptians I met expressed a surprising nostalgia for the good old days of the former president Hosni Mubarak.

Early Friday morning, Israel attacked military installations near the Iranian cities of Isfahan and nearby Natanz, the latter being one of the hubs of the country’s nuclear program. Jerusalem is not taking credit for the attack, and none of the details are too certain, but it seems that the attack involved multiple drones, likely launched from within Iran, as well as one or more missiles fired from Syrian or Iraqi airspace. Strikes on Syrian radar systems shortly beforehand probably helped make the attack possible, and there were reportedly strikes on Iraq as well.

Iran itself is downplaying the attack, but the S-300 air-defense batteries in Isfahan appear to have been destroyed or damaged. This is a sophisticated Russian-made system positioned to protect the Natanz nuclear installation. In other words, Israel has demonstrated that Iran’s best technology can’t protect the country’s skies from the IDF. As Yossi Kuperwasser puts it, the attack, combined with the response to the assault on April 13,

clarified to the Iranians that whereas we [Israelis] are not as vulnerable as they thought, they are more vulnerable than they thought. They have difficulty hitting us, but we have no difficulty hitting them.

Nobody knows exactly how the operation was carried out. . . . It is good that a question mark hovers over . . . what exactly Israel did. Let’s keep them wondering. It is good for deniability and good for keeping the enemy uncertain.

The fact that we chose targets that were in the vicinity of a major nuclear facility but were linked to the Iranian missile and air forces was a good message. It communicated that we can reach other targets as well but, as we don’t want escalation, we chose targets nearby that were involved in the attack against Israel. I think it sends the message that if we want to, we can send a stronger message. Israel is not seeking escalation at the moment.