Egypt has been mired in an economic slump with high unemployment and rising inflation for years. The government of Abdel-Fattah el-Sisi, the former general who seized power from an elected Islamist government three years ago has not succeeded in puling the economy out of its abyss and has been looking to outside sources for help.
It has already received tens of billions in aid including over $25 billion in cash injections from Gulf states. but that seems to be a drop in the Egyptian bucket. Now the IMF is stepping in with a tentative loan of $12 billion over the next three years.
According to recent numbers, the official jobless rate in the country is around 13 percent and the figure for young Egyptians is more than double that. The country has a trade deficit of 7 percent of gross domestic product and a budget deficit of 12 percent of GDP. The education system is in a mess, so much so that the jobless rate is actually higher for university graduates than for the near-illiterate.
A quarter of the population of 90 million lives in poverty and about the same proportion of adults is illiterate. Egypt could run out of water within a decade thanks to rapid population growth, wasteful agricultural practices, and a bad deal struck with neighbors upriver.
To make matters worse, the country has an overvalued currency and is facing a serious shortage of foreign exchange. Official reserves took a beating five years ago and still haven't recovered.
The Arab Spring which killed tourism to the country can be partially blamed for some of Egypt’s difficulties and the recent downing of a Russian charter plane over the Sinai by terrorists last year as well as the mysterious crash of an EgyptAir flight in the Mediterranean in May haven’t helped matters much.
Al-Sisi to Blame?
But most Egyptians point directly to Al-Sisi as the cause of the country’s woes who they say used the previous aid packages on projects that were not deemed necessary especially the huge expansion of the Suez Canal. Sisi's government has also failed to keep promises on economic reform. Reductions to fuel and agricultural subsidies and tax increases went nowhere. Efforts to calm an imperious bureaucracy that discourages investment have also proved unsuccessful.
The IMF is now requiring Sisi to try again to devalue the Egyptian pound and to impose a value-added tax. Chris Jarvis, the IMF’s mission chief for Egypt, has just wrapped up a visit to Cairo and agreed to let the fund lend Egypt $12 billion over three years, pending approval by its executive board. The IMF loan is likely to be followed by money from the World Bank and African Development Bank
In return for the influx of funds from these sources, Egypt has promised a number of reforms including the devaluation of the pound. A valued-added tax (VAT), which would raise much-needed revenue, is being considered by parliament which seems likely to pass but with all sorts of exceptions. Another measure, to reform the bloated civil service, has been met with objections and protests, despite the fact that it would not actually pare back the bureaucracy.
Analysts say that the current proposed infusion of money will not lead to a real reform and that Egypt must invest in simple infrastructure such as roads, schools and water-supply systems. It must also make it easier for small and medium-sized business to get bank loans and break up the military-industrial monopolies in everything from washing machines to olive oil. It also needs to end the crackdown on civil society, and move toward a free and fair presidential election. This is a lot to ask for.