“The currency had slid by 10% since January. Unemployment may be as high as 20%. The Stock Exchange this year has slumped by a 10th. Tourism, which used to account for 12% of Egypt’s GDP, has evaporated” (The Economist).
Because of Egypt’s devalued currency, the bank
has imposed strict exchange controls. This has had a negative effect because little
new money is coming into the country. This crisis has caused the Egyptian Pound to fall against
the US Dollar. As learned in class, this is due to the decline in growth,
increase in inflation and decline in productivity. This change matters because
it affects the price of good and trade. Currently there is a food and fuel
shortage. Egypt is a major importer of wheat, a staple in their diet, but
cannot import any wheat because the lack of hard currency. The government feels
confident that Egyptian farmers can grow enough wheat to respond to demand but
the fuel shortage makes it difficult for farmers to till their fields.
In response to this crisis the IMF has promised to lend Egypt $4.8
billion. With this loan, the government has a big responsibility ahead of them, to reform the system for fuel and food subsidies. For
example, diesel accounts for $7.5 billion in subsidies and consumers can
purchase it for as little as 16 cents a liter. Bigger cuts in subsidies need to
be made in order to improve the economy. The government has barely made an
impact in improving the economy and in the upcoming election they need to elect officials that will
“…put the country before themselves…” (The Economist). This loan from the IMF is to ensure the other countries that
Egypt is creditable in hopes that the country will get an influx of money from
new investors. To help alleviate the problems the government has borrowed from
local banks at high interest rates, begged the governments of the Gulf
countries for money and has tried to pass legislation to issue Islamic bonds. Though this is still not enough, “Egypt’s official foreign reserves, around $36 billion
before the revolution of January 2011, have tumbled to around $13 billion,
barely enough to cover three months’ imports” (the Economist). Libya just made
an agreement with Egypt to give them $2 billion to put into their central bank.
This is an open ended loan and a possible quid pro quo.
Egypt's economic situation seems to have placed the country on the verge of another revolt. The devaluation of the currency and the dwindling of foreign reserves have made the nation a ticking time bomb (Deutsche Welle). As a result of the devalued currency, Egypt is losing business to foreign competitors. For instance, in the textile trade, Egypt faces growing competition with and loss of business to countries like Morocco and Bangladesh. According to foreign media, the devaluation of the currency is not the only reason for Egypt's decline in business in recent times. The police and security forces that seemed to stand guard at all times under Mubarak's regime have practically disappeared; the reason is that many high ranking police do not agree with the Muslim Brotherhood regime of Mohammed Morsi. This has led to a spike in crime to go with the weakening currency and rising prices. The rising prices caused by Egypt's economic turmoil have made a larger portion of Egyptians impoverished. With more and more of the population falling below the poverty line, a revolt of some sort seems almost inevitable.
ReplyDeleteSource: http://www.dw.de/egyptian-economy-is-a-time-bomb/a-16549994
The Egyptian economy relies heavily on political stability. Before the 2011 uprisings the people of Egypt were already dealing with overwhelmingly high unemployment and corruption. Post-revolution, they received the same regime type when Morsi declared a state of emergency. The economy will not recover until a politically stable government comes into power that is not bent on authoritarian rule. In addition, Egypt will need to refocus its industry towards petrochemicals. This article (http://allafrica.com/stories/201304010439.html) depicts this sector as the "trump-card" for the Egyptian economy. With a stable government in place, it is possible that workers can be moved into this growing sector and the economy can recover.
ReplyDeleteThe political instability that exists has disrupted the economic progress of the member nations within the regions. Following the onset of the Arab Spring, many nations began their inauguration into the modern world economy. Egypt seems like a likely case to investigate. The high un-employment and systemic corruption that existed within the nation, affected the proper development and operation of the economy. In order to participate in the capitalistic world economy, most stabilize the political order within their country in order to do so. The political instability that afflicts many nations within the region, can be seem as the main stumbling block confronting these nations. With a stable political order a reliable economy will soon follow.
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