Egypt is teetering on the edge of an economic crisis. Cast adrift in a deepening political quagmire over the past fourteen months, the economy has now reached a critical juncture, as the country faces the pressing challenge of financing a large budget deficit as rapidly dwindling foreign currency reserves threaten to crack apart an already fragile situation.
Yet, more than a year after the launch of a revolution driven in large part by economic grievances, the budgetary and fiscal proposals being considered to secure external financial assistance are geared more towards furthering Mubarak-era policies than to promoting social justice.
The state deficit for the fiscal year that ends in June is expected to exceed 140 billion Egyptian pounds ($23 billion), or about 8.7 percent of expected economic output, according to the Minister of Planning and International Cooperation. Meanwhile, the central bank’s foreign reserves have been shrinking by roughly $2 billion every month, precipitated by a sharp decline in tourism and foreign direct investment since the revolution began.
Over the past year, the government has used up more than $20 billion to prop up the local currency. In February, foreign reserves stood at $15.7 billion, enough for just three months of imports, and with it, the looming prospect of devaluation.
Egypt, like many developing countries, relies heavily on imports, including for staple items such as wheat. (Egypt is the world’s largest importer of wheat, relying on foreign supplies for about 60 percent of domestic consumption). A currency devaluation would increase import prices across the board, severely deepening the recession and prolonging any economic recovery.
"The economic situation is dire but really the Achilles Heel comes with the balance of payment position and mainly with the fact that we don’t have enough dollar reserves," says Amr Adly, the head of the Economic and Social Justice Unit at the Egyptian Initiative for Personal Rights.
In January, the military-appointed interim government formally requested a $3.2 billion loan from the International Monetary Fund (IMF). The government says it needs $11 billion to avoid a balance of payments crisis and signing a deal with the IMF is expected to open the door to aid packages from the United States, the European Union and the Gulf. The IMF requested the Egyptian government draw up an economic reform plan supported by political consensus in order to secure the loan.
"The IMF has become quite smart lately in the sense that they don’t impose direct conditionality in order to give money," Adly says. "They ask the government to design the program and they have to accept it so they can release the tranches. So it is indirect conditionality because they won’t give you the money unless they approve of the plan."
The Ministry of Finance, the Ministry of International Cooperation and the Central Bank drafted a reform program to present to the IMF, the details of which were not released publicly—although a copy was leaked to the media. While the plan’s proposed policies are extremely vague—with few specifics and little in the way of proposed timetables—the document includes the classic phrase associated with IMF loans across the developing world: "structural adjustment," and with it, a slew of controversial economic amendments.