Even though the “interim” government in Egypt has severed ties with many countries around the world, the coup leaders have commended the policies proposed to tackle the country’s deteriorating economy. Current losses suggest that the coup-backed regime is sending Egypt into a long, dark tunnel with no end in sight.
Following the July coup, the government issued several statements announcing that it would use Egypt’s natural resources to rebuild the economy. However, it soon turned to internal and external debt to give the economy a boost.
The funds from Saudi Arabia, UAE and Bahrain in the form of loans, grants and oil shipments failed to improve or stabilise the situation, pushing the government to borrow around 200 million Egyptian Pounds ($28 million) in treasury bills from local banks. This was not enough and Cairo has turned to the IMF and international financial institutions, despite earlier assurances to the Egyptian people that it would not go down that route. However, the IMF will not consider a loan of $4.8 billion until the interim government is given formal international recognition.
The coup government is clearly incapable of tackling this issue despite its claims to the contrary.
The tourism industry is perhaps the sector most affected by the coup. Several countries have issued warnings to their nationals against travelling to Egypt during this period of political unrest. The country has suffered a sharp drop in the number of tourists, costing the state millions of dollars in lost revenues.
According to economic experts the interim government does not have clear plans to overcome the worsening budget deficit which stands at 12 per cent. While the previous government had plans to reduce the deficit to 9 per cent, the coup government’s proposals are expected to increase it as they are unrealistic. Nevertheless, the government is considering unemployment benefits of 200 LE as a political card, at a cost of billions to the Egyptian treasury.
The Egyptian Stock Market has been a major loser since the coup, with losses of more than 60 billion Egyptian Pounds ($8 billion) within a month. Many foreign investors have taken their capital elsewhere.
The government attributes the economic downtown to the crisis in providing employees’ salaries but in truth it cannot exist on donations from sympathetic states. In 2008, a few months before the global financial crisis, Egypt’s GDP was growing at 5.2 per cent pa. Following the January 25 Revolution it ranged between 2.1 and 2.6 per cent. Any worthwhile economic plan should aim at a GDP growth rate of at least 6 per cent pa.
The coup has also affected wheat production in Egypt. Mohammed Abu Shadi, the interim Supply Minister, cancelled the previous government’s decision to halt wheat imports in order to enhance national production; he allowed unhealthy oils into the market instead of sunflower oil. He has now decided to reconsider the new bread production system as the country struggles to produce affordable good quality loaves.
Abu Shadi’s statements demonstrate the success of the bread system adopted by his immediate predecessor as minister, Dr Basem Odeh, whose system provided the best types of bread to the people of Egypt and eliminated the theft of subsidised flour. Despite this, the coup-led Beblawi government plans to cancel bread subsides and increase the price of a loaf to 10 piasters instead of 5.
The World Bank warned 5 countries in the Middle East, including Egypt, of the risks of slow economic growth in the MENA region due to fiscal deficits, high debt rates, high unemployment, inflation and recession. The Bank attributed the risks to several factors, including political instability and the weak economies of these countries even before the Arab Spring. According to the WB report the economies of these countries have declined during the second half of the fiscal year 2012-2013 before the interim government took over and before financial support from the Gulf States was given. The report also revealed that by the end of the fiscal year 2012-2013 the growth rate had reached 2 per cent, making it the second consecutive year in recession.
According to international reports, industrial production has declined even though investment increased significantly post-revolution. During the first half of the fiscal year 2012-2013 Egypt’s industrial production declined by 2 per cent compared to the second half of the previous year as a result of reduced investments.
The coup-led government’s repressive rule, killing of civilians, arrests and daily massacres against peaceful protesters have caused foreign investors to withdraw their capital from Egypt. The deteriorating political situation has forced a number of car manufacturers and companies in the house ware sector to suspend production.
Deposed President Mohamed Morsi had decided to raise the social allowance value from 10 per cent to 15 per cent to help ordinary Egyptians to cope with the increasing burdens of life. However, the new government hinted earlier that it would annul the decision, prompting angry reactions from government employees. This forced the government to retreat; it has now decided to reduce the value instead of abolish it.