Egypt's dire economy looms over elections

Egypt's unfinished revolution has ushered in an era of political uncertainty like nothing the country has seen since the 1950s, when Gamal Abdel Nasser mobilized millions of his countrymen and millions more across the region in support of pan-Arab nationalism and defiance of the region's old colonial powers.

Egypt's politics are once again rolling along, with the backroom machinations of generals, Islamists, and the surviving old guard from the Mubarak era punctuated by street protests and howls of complaint over opaque election rules and interference with efforts to write a new constitution. The country now heads towards a presidential election scheduled for May 23 with every thing to play for, and much uncertainty about the outcome and its eventual meaning.

But amid all this, one thing is certain: The Egyptian economy is in dire shape, and not due to get better any time soon, the promises of presidential hopefuls like Amr Moussa notwithstanding. This week, the International Monetary Fund (which usually skews its predictions in a positive direction) predicted anemic Egyptian economic growth of 1.5 percent this year, 9.5 percent inflation, and 1 million new workers added to the ranks of the unemployed.

Egypt's economic problems are a threat to a transition to a new, stable, and democratic system. Politicians are making promises, and many hopeful Egyptians will take them at their word. But if politicians fail to deliver on what is a daunting task, new rounds of upheaval could well follow, uglier and more strident than the joyous crowds that filled Cairo's Tahrir Square and public spaces across the country last year. 

And with Egypt the Arab world's largest country, which still casts a long shadow over regional politics and trends, that could have broader implications. Monarchs and other autocrats, who argue that stability is far more valuable than risky democratic change, would be bolstered. Influential external actors like the US, whose support for political change in the region has been tepid and uneven, could back off even further.

How bad is the situation? Egyptian government finances have been devastated in the past year. Rich Egyptians have stashed ever more of their cash outside of their country, tourism has plunged (down 32 percent in the last quarter of 2012) and foreign investment has collapsed (down 72 percent in the third quarter of last year).

Egypt's military junta currently has a request in with the IMF for a $3.2 billion loan. IMF Managing Director Christine Lagarde told reporters before the start of IMF and World Bank meetings in Washington this morning that even if the loan goes through "it will not be sufficient. And everybody knows that." She says Egypt will need aid from other sources.

The problem is that Egypt's foreign reserves have tumbled to $15 billion from $36 billion before protests erupted against Mubarak in January 2011. Foreign currency reserves are used by central banks to manage the value of their domestic currencies, among other things. The Egyptian pound is now a knife's edge. 

1 | 2 | 3

Next