The drip, drip, drip of Egypt's bad economic news
The Egyptian pound has tumbled in recent weeks, but it could go much further. Here's why.
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A recently laid-off civil engineer, who was working on a housing project in the greater Cairo area, says his project was shut down due to not just rising material costs but also difficulty obtaining financing from banks worried about what might come. "There's uncertainty in the financial picture, worries that the pound could fall much further, and worries that demand for new homes decline as incomes are hit," he explains, asking that his name not be used. "This isn't a healthy environment to spend money and everyone knows that – businesses, and average people."Skip to next paragraph
Dan Murphy is a staff writer for the Monitor's international desk, focused on the Middle East. Murphy, who has reported from Iraq, Afghanistan, Egypt, and more than a dozen other countries, writes and edits Backchannels. The focus? War and international relations, leaning toward things Middle East.
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Cutting subsidies is always dangerous in countries like Egypt. The Jan. 25 uprising against Hosni Mubarak in 2011 was in some ways driven by a spike in global commodities prices, and was the biggest upheaval in the country since January 1977. What happened in 1977? Then-President Anwar Sadat cut government food subsidies, sending hundreds of thousands of angry Egyptians to the streets, with rioting and violence in multiple Egyptian cities. President Sadat backed down three days later.
Morsi has also backed down. In early December he announced a raft of tax hikes that many here believe was a price of the IMF loan. He reversed course within a day, as advisers and public outrage informed him that steep tax hikes could deal a blow to the Egyptian economy and to the pocketbooks of poor Egyptians. Are those tax increases still coming down the pike? Finance Minister Momtaz al-Saeed implied that was the case at the end of December.
Finally, it's unclear when the IMF money will become available. The IMF is expected to visit Cairo sometime this month. But historically, the international lender has been uncomfortable stumping up cash in uncertain situations. Egypt is to hold a parliamentary election within two months, and the government they put in office might not be willing to abide by any deal Morsi cuts now – a fact of which IMF negotiators will be well aware. Even after a successful parliamentary election, given Egypt's recent track record, it will probably be months before a new government is formed. Those new legislators may agree to the IMF's terms, but it seems quite likely that will be many months away from today. There's a very real risk that the IMF will stay on the sidelines when Egypt needs foreign capital the most.
To be sure, the IMF must remember cases of demanded subsidy cuts leading to riots and political instability in the past. The IMF's insistence on subsidy cuts from Indonesia's dictator Soeharto, even as that country's currency collapsed in 1998, sparked riots that drove the economy into a tailspin and Soeharto from power.
For Egypt's poor, quite understandably, bread is everything. And in one way or another, it looks likely to get more expensive.