Given that Egypt has now been mired in political instability for more than three years, it is perhaps little surprise that the economy is floundering. The country has seen not one but two uprisings since 2011. Ongoing unrest and state violence – most recently by the military-backed regime against the supporters of the ousted Muslim Brotherhood – have frightened away foreign investors and tourists.
It was for this reason that President Abdel Fatah Al-Sisi, the former army chief who resigned from the military in order to stand for election earlier this year, pledged in his campaign that he would take whatever painful steps were necessary to get the economy moving. He told voters that there would be suffering ahead to rebalance Egypt’s crisis-ridden budget, which is currently sustained only by huge loans and grants from Gulf states.
However, those warnings were apparently insufficient preparation for the reality of such measures. The surprise announcement of price rises – resulting from cuts to subsidies and hikes in taxes – has been met with widespread protest and outrage. At the start of last week, phased electricity rises were announced. On Friday, it was declared that petrol prices would rise by a minimum of 40 per cent and a maximum of 80 per cent, while gas fuel – often used by taxis – would rise by 175 per cent. Diesel, which fuels most of the minibuses that transport the poorest people in Egypt, went up by 64 per cent overnight. On Sunday, Al-Sisi said that taxes on cigarettes and alcohol would also be increased.
Given that much of the population is already struggling to sustain the cost of living in the face of high inflation, low salaries, and high unemployment, the planned price rises have come as a shock. Different news agencies quote protesters saying that they had expected Al-Sisi to improve their quality of life, not reduce it, and that he risks meeting the same fate as his predecessor Mohamed Morsi – that is, a swift ousting from power.
While the economic changes have come as a shock to the population, in one respect, they have been a long time coming. The International Monetary Fund (IMF) has repeatedly demanded the reform of subsidies in order to reduce the deficit. A failure to implement these changes meant that Morsi was unable to secure a much-needed loan from the IMF. For some years, different opposition parties have portrayed the IMF’s punitive demands as an attack on Egyptian sovereignty. Yet the budget deficit is $33.7 billion – around 12 per cent of GDP. This is only sustainable because of significant financial support from Saudi Arabia, the United Arab Emirates, and Kuwait. These states all support Al-Sisi, as they are concerned about the Muslim Brotherhood within their own borders and did not want to see it in power in Egypt. Yet their financial support is not open-ended, and the Gulf states have, like the IMF, demanded that the deficit be reduced. The price rises that have just been announced will make a significant dent; the prime minister, Ibrahim Mehleb, told reporters that cuts to energy subsidies alone would save $7 billion a year.
But, of course, such economic gains remain abstract to the vast majority of the population, who are more concerned with how to pay their bills and put food on the table. Broadly speaking, Al-Sisi enjoys significant popularity. But taking such a step so early in his presidency is a gamble, as he acknowledged in a speech: “The decision to move prices to offset the subsidy reduction may not suit this timing and it could damage my popularity, but I made it to save the nation and the state.”
Protests at the announced price hikes have not yet turned violent – perhaps an indicator of increased social stability, as it was the constant threat of wide scale unrest that kept previous governments from implementing such changes. But, given that these measures are expected to push inflation up to 14 per cent, things will get worse before they get better. In attempt to counter popular discontent, the army (closely tied to Al-Sisi’s administration) said that it would sell cheap products in its network of shops, and that it would provide extra bus services in Cairo. But the fact remains that price rises have not been accompanied by any wide-scale social security programme or significant mitigating measures for the poor. This means that the subsidy cuts and tax rises will be seen by many as overly harsh actions by an uncaring government. Al-Sisi likened the cuts to a “bitter medicine”. The question is how far his popularity will sustain him with a population that feels it has had enough medicine already.