Via the Globe and Mail, by Patrick Martin
As Egypt’s rival politicians agreed Thursday on a plan to start a “serious dialogue” to overcome the country’s political chaos, its economic crisis is no less urgent.
Egypt’s economy is growing at the slowest rate in two decades and official figures put unemployment at 13 per cent. Youth unemployment, one of the drivers of the revolutionary movement in 2011, is now 25 per cent for people between the ages of 25 and 29, and 41 per cent for those 19 to 24.
“That statistic alone constitutes a socioeconomic time bomb,” says Samir Radwan, Egypt’s finance minister from January to July, 2011 – the period that included the popular uprising and the resignation of Hosni Mubarak.
The Suez Canal, through all the political turmoil, has been one of Egypt’s few dependable means of income and source of badly needed foreign currency. Tourism, on the other hand, the other principal foreign-currency earner, is down by at least 30 per cent since the 2011 uprising and made even worse during episodes of violence such as that seen in the past 10 days.
Tourism in Cairo is now practically non-existent; in southern Egypt, it’s only about 5 per cent of what it normally is. Even the resorts of the Red Sea, far removed from the political tensions at the centre of the country, report having only 50 per cent of the numbers of tourists they usually would host at this time of year.
The country’s foreign-currency reserves have now fallen below the critical $15-billion mark, constituting less than three months’ worth of imports. As a result, one knowledgeable business consultant said, it’s no longer possible to import anything on credit. “Everything is now on a cash-only basis,” he said – meaning a lot less is being imported and the price of those imports is rising.
Egypt imports about 40 per cent of its food, including some 60 per cent of its wheat, an important staple, so the effect is widely felt.
With a quarter of all Egyptians getting by on about $1 a day, and another quarter living on $2 a day, it’s no surprise that the Egyptian Food Observatory reports 86 per cent of Egyptian households have insufficient income to pay for total monthly needs.
Consequently, about a third of the state budget is spent on subsidies, a figure the International Monetary Fund insists must be reduced if it is to lend Egypt the $4.8-billion Cairo is requesting.
Of course the IMF won’t even consider a loan to Egypt, nor will countries such as Germany and the United States offer any financial concessions, until there is real evidence of order being restored in the country and of democratic procedures being followed. That’s the vicious circle the country is experiencing: Political unrest grows because the economy is so bad, and the economy worsens because of the political unrest.
Thursday’s agreement by the leaders of President Mohammed Morsi’s Freedom and Justice party, the Salafist Nour party and the National Salvation Front may offer a façade of order, but it’s unlikely to be sufficient to impress most prospective lenders.
Even most Arab countries last week turned down Mr. Morsi’s appeal for cash to help cover the country financial shortfall. Only Qatar, a key supporter of the Muslim Brotherhood from which Mr. Morsi hails, has provided a substantial amount of funding: $2-billion last year and a commitment for a further $2.5-billion this year.
This makes the IMF loan all the more vital.
“Not only would an IMF agreement provide needed cash flow to the budget, it would also provide a kind of certificate to reassure investors that the government has the sound financial and monetary policies required to deal with its swelling budget deficit and public debt,” Mr. Radwan, the former finance minister, said in a commentary last week for Bloomberg News.
“Without a return to prerevolutionary growth of more than 7 per cent, unemployment and poverty rates will not fall and the crisis will continue,” said Mr. Radwan, an expert on development policy and employment. And unless there is financing to cover the $14.5 billion gap caused by budget and balance-of-payment deficits, there won’t be any growth.
Mr. Morsi, on a one-day visit to Germany this week to try, unsuccessfully, to pry funding from Berlin, painted a rosy picture of Egypt’s future growth. He said he hoped for economic growth of 5.5 per cent next year, and 7-8 per cent in subsequent years. That, he said,