Egypt struggles to contain financial crisis after two years of turmoil
Posted Wednesday, January 9 2013 at 12:28
Egypt is currently struggling to survive a severe financial crisis created by two years of turmoil and instability following the upheaval in early 2011 that ousted former President Hosni Mubarak.
The new leadership under President Mohamed Morsi is working hard at international and Arab levels to contain the crisis and to rescue the deteriorating economy in such a critical transitional stage in the country's history. On Monday, Egypt held lengthy talks with a delegation from the International Monetary Fund (IMF) in Cairo over a rescue loan of 4. 8 billion U.S. dollars, after which Egypt's presidency stated Tuesday that the IMF reaffirmed its commitment to support Egypt's economy.
Analysts said such rescue loans represent double-edged pressure on the Egyptian leadership, as they have an impact on the Egyptian political decision on the one hand, and will make the Egyptian government raise prices and impose extra taxes to be able to pay off the loans, causing a public pressure, on the other. "The IMF is neither a charitable nor a social organization. It aims to rescue distressed countries through reforming the blemishes in their economic structures," Dr. Ibrahim Abdullah, an economics professor at the American University in Cairo, told Xinhua.
Abdullah stressed that such loans undoubtedly represent both political and financial pressure on the Egyptian administration, noting that Egyptian local commodities have to replace "provoking and unnecessary" imported ones, such as cigarettes, alcoholics and soda, to overcome the ongoing crisis.
Economic expert Ahmed al-Naggar of Al-Ahram Center for Political and Strategic Studies meanwhile described the current government of Prime Minister Hesham Qandil as "a failure," arguing that it wanted to cover its failure to boost economy by borrowing and then burdening the coming government with the debts.
Al-Naggar told Xinhua that Egypt could do without the IMF loan if it took care of the tourism sector that brought 13 billion dollars in 2010 and if it had fair prices for mineral resources that would save the country around 4 billion dollars every year. "What is the value of these fragile financial aids, through which the United States and the West impose their conditions on Egypt and its policies?" Al-Naggar wondered, stressing that accepting such aids was "a crime" and that Egypt's relations with the West should rather be based on mutual interest.
At the Arab level, Morsi held talks Tuesday with Qatari Prime Minister Hamad bin Jassim al-Thani in Cairo over the economic relations between the two countries, after which Bin Jassim told a new conference that Qatar sent 5 billion dollars to Egypt in aid, 4 billion of them as a deposit and 1 billion as a non-refundable grant. Although such Arab deposits and grants, particularly those of Qatar, represent a relief to the Egyptian struggling economy, they also raise concerns about Qatari attempts to dominate the affairs in Egypt.Commenting on the said concerns, Bin Jassim told reporters Tuesday that they were baseless claims and that the alleged Qatari attempts to dominate Egypt was "a silly joke."
Economic expert Ehab al-Desouki supported Bin Jassim's opinion, denouncing the attitude of some Egyptians who consider foreign investments as "enemies of Egypt." "There must be specific information and evidence to Qatari dominance of Egypt's economic affairs. Countries all over the world compete to attract foreign investments and there are still some Egyptians looking at them as enemies," Al-Desouki told Xinhua. He added that foreign investment is one of the major solution for Egypt's financial crisis, noting that a country could not dominate another through investment unless it exceeded 50 percent, lamenting that the total value of foreign investment in Egypt is still less than 6 billion dollars.
Egypt is currently facing a 42-percent budget deficit, which is expected to vary between 30 billion and 32.5 billion dollars by the end of the fiscal year 2012/2013, according to the prime minister. In a recent statement, the Central Bank of Egypt warned that Egypt's reserves of foreign currency has reached an alarming level, falling from 36 billion dollars in January 2011 to about 15 billion dollars at the end of December 2012.