By Celine Cornu
By Celine Cornu
CAIRO, May 24, 2012 (AFP)
The new Egyptian president being elected by voters across the Arab world’s most populous nation will face a dire economic reality, with stalled growth, falling investment and massive income inequality.
“The economic situation for the president will be very difficult, we are in a period of economic slowdown,” Mahmoud Abdel Fadil, an economics professor at Cairo University, told AFP.
After growth of 5.1 percent in 2010, Egypt’s GDP grew just 1.8 percent in 2011, after the country’s February uprising which ousted former president Hosni Mubarak.
Projections from the International Monetary Fund (IMF) forecast even weaker growth this year, just 1.5 percent, before an expected rebound of 3.3 percent in 2013.
Unemployment has climbed to 12 percent, up from nine percent, with youth joblessness at 24 percent, according to official figures.
“The big challenge for the president will be to attract foreign investors and boost tourism,” to “restore the balance of payments” and “restore the reserve” currency in the central bank, which has dropped by half in the past year.
To do that, the new president will have to “reestablish political stability and assure a level of total security. Confidence must be restored,” Abdel Fadil said.
The only way to stimulate the economy is “political reforms and security. That’s number one, even more important than economic reforms,” said Ahmed Gamal, director general of the Economic Research Forum.
Tourism, a key pillar of the Egyptian economy that employs around 10 percent of the population, saw revenues fall by 30 percent in 2011, according to official figures.
Images of violence keep tourists away
The images of violence during the January-February 2011 uprising that ousted dictator Mubarak, and the episodes of unrest that have followed, have kept away tourists that once flocked to the country.
At resorts on the Red Sea and in the Sinai, some tourists have begun to return, but the numbers remain lower than usual in Cairo and other visitor hotspots.
In terms of reserves, there was some improvement in April, Abdel Fadil says, adding that a deal with Saudi Arabia, which calls for Riyadh to deposit a billion dollars in the Egyptian Central Bank, bodes well.
In a country where 40 percent of the population lives on two dollars or less a day, the challenge will be to produce job-creating economic growth,” and “greater equality among all Egyptians.”
Egypt’s old regime in its final years touted positive economic results, but the growth simply “created a large, ultra-rich and ultra-influential business class,” leaving behind a large population of public employees, peasants and the unemployed.
The IMF is discussing with Cairo an economic programme to accompany a loan of $3.2 billion and in mid-May called on Egypt to “look beyond the short-term and to address the problems that were at the root of the revolution.”
But whatever measures are taken need to be balanced against the danger of increasing Egypt’s budget deficit, which stood at 9.8 percent of GDP in 2011, according to the IMF.
Potential measures to improve Egypt’s wide economic gaps include an increase in the hourly minimum wage, higher taxes on the country’s wealthiest, or an overhaul of the subsidies applied to energy and basic goods, Gamal said.
The use of subsidies, which keep prices low for gas and bread in particular, is “inefficient, costly and fails short of helping the poor adequately,” he added.
He wants to see the subsidies “phased out over time, and the sooner the better.”
Instead he says, there should be a shift from “subsidising commodities to subsidising individuals.”