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Who Will Save Egypt?
MARINA OTTAWAY is a Senior Scholar at the Woodrow Wilson International Center for ScholarsSee more by this author
Egyptians have a lot to be upset about these days, and they are showing it. The one-year anniversary of Egyptian President Mohamed Morsi’s inauguration has brought with it major protests and counter protests, raising fears of renewed political violence. Underneath all the anger lies a basic fact: The Egyptian economy is in deep trouble.
Since former President Hosni Mubarak was ousted in 2011, the state’s revenue has decreased sharply. The business sector is in the doldrums, and investments have dried up as both domestic and foreign investors bide their time waiting for the political fog to lift. At the same time, the government’s expenditures are mounting. The climb is partly a result of salary increases that were granted to government workers since the uprising in an attempt to quell the unrest. More fundamentally, though, the costs of subsidies on food prices and, above all, energy continue to mount as oil prices increase on the world market but Egyptian consumers are charged the same prices as before. Energy subsidies now amount to more than $16 billion a year, with an additional $4 billion devoted to food.
A country in such dire straits would usually turn to the International Monetary Fund (IMF) for support, accepting painful and even politically dangerous reforms to secure a much-needed loan. But after two years of negotiations, which started with the first post-Mubarak transitional government under the Supreme Council of the Armed Forces (SCAF), Egypt has yet to reach an agreement with the IMF. Talks are now on the back burner until after Egypt’s parliamentary elections, which will take place sometime this fall or in 2014. In the meantime, the country’s foreign currency reserves have dwindled from $36 billion before the uprising to $16 billion in May 2013, having reached a low of $13.4 billion in March. Also in May, the country’s Standard & Poor long-term credit rating was downgraded from B- to CCC+, and the budget deficit reached over 11 percent of GDP, up from 8.3 percent before the uprising.