Egypt: Stating the Obvious

Although the outcome may have been viewed as a surprise by many, the ongoing economic malaise that partially fueled the revolt against — and eventual ouster of — Egyptian President Muhammad Morsi, was not.

The Arab Spring, which led to the fall of Egyptian ruler Hosni Mubarak in February 2011, promised political revitalization and economic growth for one of the region’s most important political players. However, in the more than two years since his ouster, little progress has been made to improve Egypt’s macroeconomic fundamentals, and the well-being of average Egyptians has suffered as a consequence.

While no one expected overnight delivery of economic prosperity, the dramatic deterioration of economic conditions1 that has occurred since was also largely unexpected.

  • Real economic growth has fallen by half from 5.1% in 2010 to 2.2% in 2012.
  • The Egyptian pound lost more than 17% of its value from the end of January 2011 to now.
  • Foreign currency reserves have fallen from $35.0 billion at the end of January 2011 to $14.9 billion in June 2013, close to dropping below three months of import cover.
  • Unemployment has risen from 8.9% at the end of 2010 to 13.2% in March 2013.
  • Inflation has decreased from 10.8% at the end of January 2011 to 9.8% in June 2013.

Failure to address economic issues

In short, the country is more vulnerable to shocks now than it was two years ago, although economic conditions were precarious even then. It was an uphill battle to begin with.

Political and economic interests are deeply entrenched in existing financial institutions and business. In addition, the uncertainty that followed the Arab Spring and Egyptian presidential elections deterred investment and tourism, an important source of foreign currency. The Morsi administration, ushered in on the promise of “Bread, Dignity and Social Justice,” exacerbated the situation by relegating economic concerns to the back burner — unattended — where they festered and ultimately contributed to his undoing. Egypt’s economic slide in the interim was both fast and painfully obvious, even as it failed to secure a $4.8 billion loan from the International Monetary Fund, and its sovereign debt rating was cut by the international credit rating agencies.

The painful lesson for the Egyptian authorities is this: Economic issues are part and parcel of the broader “social contract” between the public and its elected government. Addressing those issues, especially when entrenched interests exist, is not easy, “sexy” or politically rewarding in the short term. But failing to address them runs the risk of undermining any political undertaking.

Unfortunately, making progress on much-needed structural economic reforms is likely to be more difficult now than it was two years ago. Existing economic conditions are far worse, and the Egyptian public — no longer buoyed by the euphoria of the Arab Spring — is less patient and more divided. However, failure to create a structured, concrete, transparent framework for economic policy — at the risk of stating the obvious — will continue to be the Achilles heel of any future administration.

1 Source: Bloomberg L.P.

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