Egypt inches to­ward IMF bailout

Sisi de­fends re­forms amid short­ages, soar­ing prices

Kuwait Times - - BUSINESS -

For two weeks now, the shelf once piled with bags of sugar - for bet­ter or worse Egypt’s most loved com­mod­ity - has stood empty at this gro­cery store in bustling down­town Cairo.

“This is noth­ing - they’re miss­ing even more things in my vil­lage,” said Mah­moud Su­lay­man, a former army con­script from the Nile Delta now work­ing as a store clerk. “Peo­ple are not up­set, they are an­gry!” Eco­nomic pres­sures are bear­ing down on Egypt, with sev­eral key steps to be taken in the days ahead to se­cure a bailout by the In­ter­na­tional Mone­tary Fund at a time when goods short­ages and ever-ris­ing prices are prompt­ing pub­lic out­rage at the lead­er­ship of Pres­i­dent Ab­del-Fatah Al-Sisi.

An es­ca­lat­ing spat with main backer Saudi Ara­bia will likely be of less im­me­di­ate im­por­tance for the econ­omy, af­ter Egypt an­nounced the king­dom had al­ready con­trib­uted much-needed fund­ing to help meet pre­con­di­tions for the loan.

Unavoid­able

Mean­while, Sisi has de­fended what he de­scribed as “tough but unavoid­able” re­forms ahead of a $12-bil­lion In­ter­na­tional Mone­tary Fund loan to re­vive his coun­try’s ail­ing econ­omy.

“The re­forms are tough but they’re unavoid­able to save the eco­nomic sit­u­a­tion,” Sisi said in an in­ter­view pub­lished yes­ter­day by state news­pa­pers. In ex­change for the IMF loan, Egypt is ex­pected to adopt dras­tic re­forms to in­crease pub­lic rev­enues and re­duce state sub­si­dies, which make up 7.9 per­cent of govern­ment spend­ing.

Sisi de­scribed a “pro­gram for real re­forms that aims to pro­vide sub­si­dies to those who de­serve them and no one else”, promis­ing “pro­tec­tion for those with low in­comes”. The former army chief, who be­came pres­i­dent in 2014 less than a year af­ter top­pling Is­lamist pres­i­dent Mo­hamed Morsi, also de­fended the army’s par­tic­i­pa­tion in large scale projects touted as part of the coun­try’s re­cov­ery plan.“The army is play­ing an im­por­tant role in de­vel­op­ment but this role will di­min­ish in the com­ing years when it will have fin­ished its plan for the re­con­struc­tion of state in­fra­struc­tures,” he said.

But the Arab world’s most pop­u­lous coun­try still needs some ad­di­tional $2 bil­lion in for­eign re­serves to reach a po­si­tion of strength it agreed to with the IMF be­fore it starts to grad­u­ally float its cur­rency against the dol­lar and cut fuel sub­si­dies, the other two main parts of the re­form pack­age the US-based lender of last re­sort is poised to sup­port.

With the cen­tral bank hold­ing back its re­serves for the big push, a short­age of the cur­rency has reached epic pro­por­tions, with a sin­gle dol­lar cost­ing up­ward of 15 pounds com­pared to 14 last week and an of­fi­cial rate of 8.9. The col­lapse has made an ar­ray of com­mon im­ported prod­ucts more ex­pen­sive, and some - in­clud­ing spare parts, medicines, in­dus­trial goods and food­stuff - are not en­ter­ing the coun­try at all. “It’s like a sick pa­tient in need of medicine, and the longer you de­lay the worse the con­di­tion gets,” said An­gus Blair of Cairobased Pharos bank, who hopes Cairo can raise the fi­nal funds from in­ter­na­tional donors next week so the IMF can de­cide to re­lease the loan.

Tourism dwin­dles

Egypt’s econ­omy has been bat­tered in the five years since an up­ris­ing top­pled long­time ruler Hosni Mubarak, ush­er­ing in tur­bu­lent rule first by the army, then an Is­lamist govern­ment, and now Al-Sisi, the former gen­eral who over­threw his elected but di­vi­sive Is­lamist pre­de­ces­sor.

For­eign cur­rency re­serves are be­ing built up with help from abroad af­ter they dwin­dled when tourism dried up over fears of ter­ror­ism, re­mit­tances dropped be­cause of low oil prices, and Suez Canal rev­enues shrunk be­cause of a de­cline in global trade. In­fla­tion and un­em­ploy­ment rates are in the double dig­its. Hopes are that by man­ag­ing the cur­rency’s flota­tion and putting dol­lars into cir­cu­la­tion grad­u­ally at rates closer to the pound’s real value, the black mar­ket will ease and even­tu­ally dis­ap­pear once the of­fi­cial value is de­ter­mined by sup­ply and de­mand and eco­nomic fun­da­men­tals.

An­other idea would be set the of­fi­cial rate to the same as the black mar­ket rate, or even over­shoot it, in order to spark a flood of in­vest­ment. As part of the IMF-en­dorsed re­form pack­age, Egypt is ex­pected to grad­u­ally lift state sub­si­dies on fuel, ba­sic ser­vices and food items, while aim­ing to sup­port the poor with di­rect, of­ten army-run wel­fare to off­set the en­su­ing surge in in­fla­tion.

Some of the pain ex­pected to in­crease in the near term for Egypt’s 91 mil­lion peo­ple, nearly half of whom are at or near the poverty line, has al­ready ap­peared.

Stores, es­pe­cially state-gov­erned co­op­er­a­tives, have be­gun to limit pur­chases of cer­tain goods like sugar, oil and rice, with sugar in par­tic­u­larly short sup­ply this week. Many stores in the cap­i­tal were com­pletely out of stock, while oth­ers posted signs ex­plain­ing the ra­tioning. Pop­u­lar anger usually has lit­tle op­por­tu­nity to ex­press it­self in Al-Sisi’s Egypt, where he has stamped out op­po­si­tion and sti­fled dis­sent by jail­ing thou­sands since he led the army’s ouster of the Mus­lim Broth­er­hood’s Mo­hammed Morsi in 2013.

False prom­ises

But a video that emerged this week of an an­gry tuk tuk driver crit­i­ciz­ing the govern­ment and re­lent­less poverty in a work­ing class neigh­bor­hood has gone vi­ral, gain­ing nearly 100,000 so­cial me­dia likes from an au­di­ence of mil­lions since it was ini­tially broad­cast then pulled by a pri­vate tele­vi­sion sta­tion.

Sisi, who promised to fix the econ­omy when he came to power, has been preach­ing the virtues of aus­ter­ity for weeks, urg­ing Egyp­tians to pre­pare for belt­tight­en­ing and even do­nate money to the state. Some have said this shows he’s out of touch with most av­er­age Egyp­tians, many of who feel they have not di­rectly ben­e­fited from his vast pur­chases of mil­i­tary hard­ware, or gran­diose plans to build cities in the desert.

Lurk­ing in the back­ground is the dis­pute with Saudi Ara­bia, whose am­bas­sador has been re­called for con­sul­ta­tions af­ter Egypt an­gered Riyadh by vot­ing for a UN Syria res­o­lu­tion spon­sored by its Rus­sian ri­vals in that bat­tle­field. The res­o­lu­tion did not pass, but the king­dom’s UN en­voy pub­licly be­rated Egypt over it.

— AP

CAIRO: An Egyp­tian trader works on the floor of the stock mar­ket in Cairo. Egypt is inch­ing to­ward meet­ing con­di­tions for a bailout pack­age from the In­ter­na­tional Mone­tary Fund, as hard cur­rency and some prod­ucts be­come in­creas­ingly scarce while an es­ca­lat­ing spat with key backer Saudi Ara­bia over­shad­ows.

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