x Abu Dhabi, UAEWednesday 26 July 2017

Fractious politics trouble Egypt's economic policy

The IMF could soon approve a $4.8 billion loan to Egypt. But after decades of stifling bureaucracy and institutional corruption, many Egyptians will be justifiably sceptical of government reforms.

As demonstrations continued in Tahrir Square after Hosni Mubarak's departure in February 2011, economic demands figured as prominently as politics. Egyptians demanded better jobs, guaranteed subsidies and an effort to tackle endemic corruption. But populist protests, so effective in forcing political change, are a clumsy way to set economic policy.

Against the political theatre of the past year - elections, military machinations, protests and bloodshed, and President Mohammed Morsi's move against the generals earlier this month - Egypt's battered economy has been the backdrop. As The National reports today, unemployment last month hit 12.6 per cent, health care and education remain inadequate, and strikes for higher wages continue to take place. Tourism remains gloomy, and foreign investors are also staying away.

Last week, Mr Morsi's government took a step towards recovery by requesting a $4.8 billion (Dh17.6 billion) loan from the International Monetary Fund to be delivered before the end of the year. Cairo needs the money to shore up its accounts, but equally important is rebuilding confidence. If the loan is to be anything more than a temporary stay of execution, it must be the first of many difficult steps towards economic reform.

The loan is opposed by the Salafist Nour Party, arguably the second strongest political coalition in the country, on the grounds that it is "unIslamic". That is just a taste of the opposition that real reforms will face.

This new government needs to sell a difficult package to Egyptians that will affect their standards of living. A devaluation of the Egyptian pound is seen as unavoidable by many economists, which would result in manageable inflation - although reduced purchasing power for ordinary citizens - while decreasing pressure on the country's foreign reserves.

Many Egyptians will be justifiably sceptical of reforms. After decades of stifling bureaucracy and institutional corruption, state-directed central planning is riddled with entrenched interests. Mr Morsi has consolidated his power in recent weeks, but reforming the public sector would entail challenging the most powerful elites, including elements of the military with which he has struck a deal.

This new government is (at least in theory) accountable to the voters, and there are red lines it cannot cross. Cutting Egypt's crippling petrol subsidy, for example, would be political suicide.

There are options here - examples such as South Korea and Indonesia show how countries emerging from strong-arm military rule can play to their strengths. But Egyptians constantly protesting for a stronger economy will probably have the opposite effect.