A recent article in Digital Journal explored some of the consequences of the loan and why it was necessary. However, a recent article in MiddleEastEye by Amr Khalifa, goes into much more detail and provides helpful background to the situation.
Khalifa notes that Egypt back in the 1977 Bread Riots killed 80 people as the Sadat government attempted to impose subsidy reduction policies required by the IMF. History is now virtually repeating itself as President el-Sisi is faced with the same situation in which, Khalifa claims, he is damned if he does get the loan and doomed if he does not.
Khalifa lists disastrous facts about the Egyptian economy that make the loan necessary. World Bank data shows that from 29.1 percent youth unemployment in 1991 the rate has risen to 42 percent in 2014. Fully, a quarter of Egyptians live below the poverty earning less than $1.90 per day.
The decline in value of the Egyptian pound has meant that prices for imported goods has soared. Inflation is at a 7-year high of 14 percent. External debt has risen in just the two years that el-Sisi has been in power from $44.8 billion in July of 2014 to $53.4 billion in January of this year. Egyptian economic analyst, Fatema El Asyouty, said back in October of 2015: “The current government will end in the worst economic disaster. Rise of the dollar, expanding external debt, unemployment, and unbearably high prices will not be tolerated by people.”
The IMF views itself as an institution that can lend a helping hand in situations such as Egypt faces. But as Khalifa observes: “Despite its vision of itself, the IMF can be a nightmare masquerading as a dream. Repeatedly, the men dressed in expensive suits come knocking on the doors of developing nations with the necktie of neoliberal policies. But with belt-tightening and reshaping of the economic landscape the name of the IMF’s game, it’s a necktie that chokes rather than adorns. Desperate to recoup losses, however, nation states play its deadly game and frequently wind up in even deeper debt.”
Egypt already has 24 million living in poverty. Reducing subsidies on basic necessities can only make the situation worse and given the policy of devaluing currency will make goods unaffordable. Already there have been demonstrations including of angry mothers who can no longer find baby formula in stores. If they do find it, they discover it has doubled in price after the reduction of subsidies. In spite of aid of more than $20 billion from Gulf States, the growth rate in the Egyptian economy is decreasing.
Some analysts such as Mohamed El Arian, an economist and chair of Obama’s Global Development Council believe that the loan provides an opportunity for Egypt and provides sufficient safeguards. However, his analysis does not take into account that the el-Sisi government is notoriously corrupt. It will be difficult to strengthen social welfare programs when the terms of the loan by removing subsidies actually ensures many of those most in need of such programs will be worse off. The government will try to ensure that the program enriches the elite within the government while repressing dissent arising from those worst off as a result of the new policies. Khalifa concludes: “A dictator with a track record of spending untold billions on self-aggrandising projects and a Western economic colossus whose solutions are “one size shrinks all economies” are the short cut to another explosion.” Strictly speaking, el-Sisi is not a dictator as he was elected with a large majority.
