Egypt’s economy bouncing back after recent upheavals but IMF urges caution

The Egyptian economy has begun to show signs of recovery from the turmoil that followed the 2011 ousting of then president Hosni Mubarak during the Arab Spring uprising.

The International Monetary Fund has predicted the country's growth rate could reach 3.8 per cent during the fiscal year 2014-2015, while finance minister Kadry Dimian says growth in the fourth quarter of 2013-2014 is expected to come in at 3.5 per cent. The Egyptian fiscal year runs to June 30th.

Over the past six months, the government, under Prime Minister Ibrahim Mahlab, has reduced fuel subsidies, raised corporate and personal income tax, developed vouchers for subsidised food items, and launched a labour-intensive project to increase traffic through the Suez canal.

The Egyptian ministry for social solidarity has announced plans to increase beneficiaries of pensions as well as recipients of subsidised foods. Due to the fall in the price of oil, Egypt has reduced expenditure on petroleum products by a quarter.

Improvement in security has prompted domestic investors to purchase $8.5 billion (€6.8 billion) worth of investment certificates in the Suez canal project while the Egyptian stock market has made gains. In October, Moody’s rating agency upgraded Egypt’s position to “stable”.

Improvement in the economic climate has prompted Gulf governments to provide fresh aid. In October, the United Arab Emirates and Egypt signed an aid agreement valued at $4.9 billion (€3.9 billion) and additional funds and fuel shipments are due.

Saudi pledge

Saudi Arabia

has pledged $5 billion in grants, deposits in the cash-strapped Central Bank and fuel.

Kuwait

is to provide a $1 billion grant to Egypt and led a major Kuwaiti property firm, al-Manshar, to sign a contract for commercial, residential and entertainment properties at a $2 billion cost.

The Islamic Development Bank has allocated $220 million for an electricity project connecting the Egyptian-Saudi grids and integrating Egypt’s network with those of the Gulf Co-operation Council.

However, the IMF has called on the government to continue to cut subsidies and reduce its budget deficit. An economist consulted by The Irish Times said that even if the 3.8 growth rate is attained, it does not make up for the low rate of 1-2 per cent over the past four years or provide for population growth of 2.6 per cent. To achieve this objective, he said, growth must be 8 per cent.

He argued there was no plan to guide development, launch major reforms or tackle corruption before there can be real economic advancement.

According to former deputy prime minister Ziad Bahaa Eldin, writing in Ahram Online, the government has not put forward policies for upgrading the educational and health systems, providing for youth employment or developing upper Egypt, the most impoverished region. Despite talk of boosting the private sector, the public sector is rapidly expanding, particularly in service and tourism industries, he wrote.

On the practical level, a power shortage has cut production and profits of major companies which have been operating at 60-70 per cent capacity while blackouts are frequent.

The government is pinning its hopes on a mid-March conference in Sharm al-Sheikh. The gathering is meant to convince international donors and foreign investors to fund major development and infrastructure projects. Mahlab has promised investor-friendly laws in force by then.

Exodus to Libya

Meanwhile, Egyptian workers line up outside the Libyan embassy in Cairo seeking employment visas despite the turmoil in Benghazi and Tripoli. Until 2011, Egyptian workers had been able to enter

Libya

and reside there without visas but this ended with the fall of

Muammar Gadafy

when restrictions were imposed and many of the 170,000 Egyptians in Libya returned home to find themselves without jobs. Desperation makes them dice with death at the hands of fundamentalist militias.