Text size:

  • Small
  • Normal
  • Large
Women sell vegetables at a market in Zagazig in the Nile delta. The Egyptian economy was stagnant last year. Asmaa Waguih / Reuters
Women sell vegetables at a market in Zagazig in the Nile delta. The Egyptian economy was stagnant last year. Asmaa Waguih / Reuters

Egyptian economy needs a miracle and not just an IMF loan

It seems that only a miracle can now rescue Egypt's economy, and indeed society, from the bleak future that it now faces. Miracles do happen, but they require vision and political will.

It may be too early to judge the success or failure of Egypt's 2011 revolution, but this much is clear: the young people who led the uprising feel betrayed, and the Islamist government that followed is focused on consolidating power when it should be ensuring economic recovery.

The genius of the revolt was reflected in its slogan - "bread, freedom, social justice". Those words expressed an aspiration for change that created unprecedented expectations, and today the country's mounting dissatisfaction is first of all because of the underperforming economy. It is no coincidence that the first word of the uprising's slogan was bread.

Egypt's economy faces daunting challenges. Technically in a recession, the country has experienced an extended period of slow growth, a big budget deficit, declining foreign currency reserves and a widening gap in the balance of payments. The Egyptian pound is under intense pressure. Meanwhile, throughout the country more people are slipping below the poverty line.

All of these failures were reflected in the downgrading of Egypt's long-term credit rating last month by Standard & Poor's.

Such is the backdrop to the debate raging in Egypt, particularly in light of the vocal demands from private and public-sector workers for secure employment contracts and higher pay. In the absence of an overarching vision of how to address the country's economic challenges, both the government and the opposition are struggling to find a solution.

It seems that only a miracle can now rescue Egypt's economy, and indeed society, from the bleak future that it now faces. Miracles do happen, but they require vision and political will.

The much-touted programme of Nahda, or Renaissance, that the Muslim Brotherhood's ruling Freedom and Justice Party proposed as the road to recovery and prosperity after presidential elections in May and June last year, vanished into thin air. The programme is now the butt of satire from cartoonists and comedians. Any serious vision must in reality - not just on paper - address the trio of growth, employment and poverty. Egypt's GDP rose less than 2 per cent last year, roughly the same as the rate of population growth. So, in per-capita terms that matter to individual Egyptians, the economy was stagnant.

Without growth, there are no new jobs. Official data put unemployment at almost 13 per cent last year, representing 3.6 million people out of work, rising to about 25 per cent for the age group 15 to 29. That statistic alone constitutes a socioeconomic time bomb.

Slow growth, combined with rising unemployment, also explains an explosion in the unregistered economy, which now accounts for one third of the working labour force. The same causes lie behind an increase in the numbers living below the poverty line to 25 per cent, from 20 per cent in 2010. A further 22 per cent of Egyptians are at risk of falling into poverty in the event of an economic shock.

Is there a way out? There has to be, because Egypt cannot afford to delay an economic recovery any longer. The economic and social costs would be immeasurable. The starting point should be to manage the short term. A growth recovery requires immediately covering a financing gap, caused by budget and balance-of-payment deficits, of about US$14.5 billion (Dh53.26bn). Egypt's domestic means fall well short of this target. At present, the investment rate is slightly less than 17 per cent of GDP, compared with 30 per cent to 40 per cent or more in East and South East Asia.

That is why securing the $4.8bn IMF loan that the government delayed last month for political reasons is a must. 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.

 

Samir Radwan was the Egyptian finance minister from January to July 2011. He was previously a board member at Egypt's General Authority for Investment and at the Financial Supervisory Authority

 

* Bloomberg News

Back to the top

More articles


Editor's Picks

 Cityscape Abu Dhabi 2014 will run until April 24, 2014. Fatima Al Marzooqi / The National.

In pictures: Cityscape Abu Dhabi 2014 opens
at Adnec

Key developments and master plans are being unveiled at this year’s property exhibition in the capital.

 Marina Square apartments Reem Island: Q1 2% rise. Studio - Dh65-68,000. 1BR - Dh75-95,000. 2BR - Dh110-145,000. 3BR - Dh170-190,000. Q1 2013-Q1 2014 no change. Sammy Dallal / The National

In pictures: Where Abu Dhabi rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Abu Dhabi have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Designed by London-based Thomas Heatherwick, founder of Heatherwick studio, the park will feature an outdoor cinema, an organic garden, picnic areas and cafes and restaurants. Photo courtesy Salama bint Hamdan Al Nahyan Foundation

Futuristic Abu Dhabi park to be built in the desert shade

Spread over 125,000 square metres, Al Fayah Park, on Airport Road, will be covered by a sand-coloured canopy, 20 metres high, with the appearance of cracked desert land from above.

 Room with a view from one of the 21 duplex penthouses located in the Gate Towers sky-bridge. The sports courts and swimming pools can be seen below. Courtesy Alda

In pictures: Aldar’s Gate Towers Penthouse Collection on Reem Island

Aldar launched its Gate Towers Penthouse Collection at Cityscape Abu Dhabi. The launch features 21 penthouses spanning the skybridge, with each having a private indoor pool and incredible views.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National