Ri Insights

The IMF does it again in Egypt

paul gadalla

by Paul Gadalla

Rai Insights Contributor

 

Despite a number of supposed reforms and promises in a new with the IMF, Egypt’s economy continues to languish and will so for some time.

Let’s face it, Egypt hasn’t been an economic powerhouse in decades. Nasser’s Arab socialist revolution merely shifted power from aristocrats to military leaders and a new set of oligarchs.  By nationalizing private industries, Nasser bloated the role of the state and military, which continue to play a huge role in Egypt’s stagnant economy.  Egypt’s populace soon became increasingly reliant on the state for everything from food to housing to employment.

 

Historically speaking, what is happening now between the IMF and Egypt is nothing new. Since the time of President Sadat, Egypt has had to heavily rely on foreign aid that came with strings attached.  Sadat attempted to end appease the IMF by ending costly state subsidies but had to retreat due to mass protests that turned into riots.  Even Morsi was forced to look for loans to help buoy Egypt’s stagnant economy.

 

Sadat thought Egypt would be attractive since it offered ‘cheap labor’ i.e. he knew the country’s impoverished rural population would work for poor wages –another bulwark of neoliberalism. Although Sadat, through his infitah or opening policy, brought in outside investment it was mainly funneled towards tourism projects. Infrastructure and industry suffered as a result. Sadat though would not completely reverse Nasserism though as the military and state still played a large in the country’s economy.

 

Sadat and his successors have refrained from ending massive subsidies in fears of popular protests but they have not taken the real reforms that country desperately needs which is the end of corruption and interference by the military in the economy.  The state’s bureaucracy continues to be a massive burden and Egypt is ranked at 116 in terms of economic competitiveness and 108 on Transparency International’s Corruption Perceptions Index.

Now Sisi is walking in his predecessor’s footsteps. Egypt’s economy has been in shambles since the January 25 Revolution. Tourism, Egypt’s main source of revenue, has dropped drastically due to the poor security situation in the country. As a consequence, along with many Egyptians pulling money out of their bank accounts due to instability, Egypt has also had a shortage in foreign currency reserves. Now Sisi is looking for IMF assistance to the tune of $12 billion that comes with harsh strings attached to them.

 

The IMF’s ream requested the Egypt introduce a %13 VAT tax, float the Egyptian currency, and reduce subsidies.  Over the past several months Sisi and his team went ahead with such reforms and already the results have been horrendous for Egypt’s impoverished masses.  Already inflation on the price of food has hit a record 37.3% in a country where the average worker can only hope of making $50 a week.  People’s savings have been hit since the pound has been devalued and one point plummeted to 15 pounds against the dollar causing prices to go increase further since Egypt is heavily dependent on imports.  And the government also cut fuel subsidies.

 

It is strange that the IMF has agreed to lending Egypt money once again when it even recognizes the state of common Egyptian will deteriorate under such reforms for a time and has not pushed Egypt to end its overly authoritarian approach to running the economy.  All of this will only mean more suffering for the average Egyptian who have seen their purchasing power plummet as prices continue to rise. Yet oddly enough, the government itself has not had to make significant reforms on how it intervenes in the economy.  In November of 2015, Sisi’s Presidential Decree 446 allows the Armed Forces Land Projects Agency to develop any land not being used by the army for private commercial ventures with foreign or domestic partners.   Sisi has also involved the army in mega-projects that attempt to wow domestic audiences such as a second Suez Canal and a new administrative capital.

 

One must ask who does these reforms serve if the government is only asked to make cuts but not overhaul its monopoly on certain things? Who is benefitting? Wouldn’t it make more sense for the IMF to refuse to give money in Egypt unless it takes concrete steps to route out corruption and give people easier access to the economy by reforming the bureaucracy? Or at least make it easier to start a business?  It only seems the vicious cycle of borrowing and harsh cuts will repeat under President Sisi. The IMF will bail his government out while the common Egyptian continues to suffer and the country’s lopsided economy continues to hobble on with no real change.

 


*Paul Gadalla is a New York native communication specialist and aspiring political analyst based in Beirut, Lebanon


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