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Egypt – Economic Situation Deteriorates

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The government devalues the currency in attempts to avoid an economic crisis, creating further worries for citizens.

As part of efforts to boost its ailing economy, Egypt has taken steps to devalue its currency, raised fuel prices and plans to cut customer subsidies, as part of conditions to receive an International Monetary Fund (IMF) loan of US$12bn.

While the IMF insists that floating the currency is a sensible long-term economic move and will attract foreign investment, many are concerned as inflation and unemployment are already high, and the price of food and services are also likely to rise, reported Al-Jazeera.

According to economists, any long term gains are going to be coupled with short-term hardships – the government hopes that attracting investment will end a hard-currency shortage. According to Reuters, wide-ranging economic problems will mean the huge volumes of hard currency required to stabilise the dollar will take a long time to arrive.

However, calls by some for protests were not supported by most opposition groups and activists; “At this point we find calls to protest scary. There is no political organisation, which means things can get out of hand. The country could burn,” said Malek Adly, a human rights lawyer with the Egyptian Centre for Economic and Social Rights, reported Reuters.

The IMF has delayed the approval of the loan until Egypt can meet the desired conditions – around $1bn had already be disbursed at the end of 15 but since then the flow of money has been halted. There have been shortages of goods such as wheat, baby milk, sugar, rice and cooking oil, reported Africa Confidential.

The decline in tourism revenues is also particularly damaging, now at around $3.8bn a year, which is less than one third of the levels before the 2011 uprising. The fears surrounding terrorism have furthered affected tourist numbers.

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Revenues from the Suez Canal have also fallen – CC

Another condition of the loan is that Egypt can secure co-financing of $5-6bn; in September the Egyptian Central Bank’s reserves went up by $3bn largely due to deposits from Saudi Arabia. However the support of Saudi Arabia has been in doubt after the Saudi Arabian Oil Company (Saudi Aramco) suspended deliveries of 700,000 tonnes per month of petroleum products – these supplies covered almost a third of Egypt’s import requirements of petroleum and natural gas. One suggestion is due to tensions of the Egyptian courts ruling against an agreement to give Saudi Arabia control over two Red Sea islands, reported Africa Confidential.

The consequences of these economic decisions are likely to be felt mainly by the poor and struggling middle class. Already at least 27% of the population live below the ‘poverty line’, and the political economic effects of structural adjustment are likely to exacerbate this further, reported Al Jazeera.

Already, Egyptians face capital controls, including limits on transferring currency abroad and the amount they can withdraw to travel overseas – this has particularly hit students studying abroad.

The focus of economic policy has largely been on grandiose projects that will take a long time for benefits to materialise. Little attention has been given to problems including massive levels of youth unemployment. Similarly Al Jazeera commented that the economic policy is entering the realm of the absurd, after President Abdel Fattah al-Sisi suggested funding for development projects could be garnered by collecting spare change.

Find out more in the Africa Research Bulletin:

EGYPT: Job Creation Boost
Economic, Financial & Technical Series
Vol. 53, Issue. 9, Pp. 21417A–21417C

Egypt – Development Policy Finance
Economic, Financial & Technical Series
Vol.53, Issue. 9, Pp. 21430A

EGYPT: Baby Formula Shortage Row
Economic, Financial & Technical Series
Vol. 53, Issue. 8, Pp. 21381C–21383C

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