x Abu Dhabi, UAESaturday 22 July 2017

Fiscal policy will be true test of Morsi's skills

Everyone - except Mohammed Morsi – agrees that Egypt now needs less politics and more economics.

Mohammed Morsi is not the first world leader to see borrowing as the way out of a budget-deficit problem. From Washington to Athens, leaders love to borrow, mortgaging their countries' futures to buy public support today. Possibly ancient pharaohs did just the same.

But Egypt's president, having reached a genuine crisis point, is showing little evidence of being able or willing to manage it. As The National reported yesterday, experts inside and outside Egypt agree that after two years of intense politics, now it is time for economics.

Even a low-income economy can be surprisingly robust; talk of "economic collapse" need not be taken literally. But the 83 million Egyptians, reeling from two years of uncertainty, missing investment and vanished tourists, are now at risk of further economic decline. And any more job losses, any added inflation, any additional roadblocks to short-term government borrowing, could easily trigger dangerous new political discord in a country already badly short on consensus.

From Iceland to Greece to Latvia, other countries caught in this unpleasant position have coped, raising taxes, cutting spending, spreading the pain among the people with more or less justice. To be sure, there have been riots, endless late-night meetings of money mandarins, and many governments voted out. But the world has managed the crisis.

Not Egypt. This week Mr Morsi obtained $2.5 billion (Dh9.1 billion) in one-time loans and grants from Qatar, but he also received a tongue-lashing from Christine Lagarde, managing director of the International Monetary Fund, which is withholding a $4.8 billion loan until Mr Morsi cuts popular consumer subsidies and raises taxes, moves that would help stabilise the troubled Egyptian pound. In the slightly longer term, Egypt needs to encourage foreign investment, fight corruption and crony capitalism, and otherwise energise the economy.

Lacking the political capital to do those things with legislative elections coming, Mr Morsi has turned his back on the gathering storm and returned to foreign policy, where he has been sure-handed and reasonably successful. This week he is trying again to jump-start Palestinian reconciliation talks. That is a welcome and worthwhile initiative, to be sure.

Any country must manage domestic and foreign affairs at the same time. But Mr Morsi and his legislative allies seem to be utterly paralysed by the growing economic crisis at home. If he does not show, and soon, that he understands the problem and is prepared to act, Egypt's turmoil will not be over.