by Haitham El-Tabei
by Haitham El-Tabei
Cairo, April 7, 2013
It is not just Egypt‘s politicians and experts who are keeping a close eye on loan talks with the International Monetary Fund: ordinary Egyptians suffering the squeeze of a devastating economic crisis are also watching with concern.
Sami Mohammed, a 49-year-old civil servant, has been struggling with soaring inflation and says he fears the IMF’s $4.8 billion loan — which requires Egypt to contain its gaping budget deficit — will only cripple his finances further.
He says he has been closely following the progress of the long-mooted deal in the newspapers, including the arrival in Cairo this past week of an IMF team.
“Recent price rises are because of the IMF talks,” said the father of two, who struggles on a meagre government salary.
“Once the deal is reached prices will go even higher. I can barely feed my sons as it is — all the prices have doubled.”
For the past five months, while Cairo has negotiated the financing package with the IMF, prices of basic commodities including electricity, water, gas and food have risen.
To qualify for the loan, Egypt is required to reduce the budget deficit by raising revenues through taxes and reducing subsidies on vital items such as fuel and bread, moves likely to spark social tensions.
Earlier this week, the price of subsidised cooking gas went up by 60 percent to eight Egyptian pounds ($1.15) from five Egyptian pounds ($0.73), triggering market chaos.
It was one of several steps taken by the cash-strapped government to rein in its subsidy bill, and has had a direct effect on the price of food in restaurants and carts that sell fava beans on which many Egyptians rely for protein.
Presidency spokesman Omar Amer said the government was trying to work on a “new formula” for economic reforms.
“We want to make sure that all the subsidies of the government will go directly to the citizens who deserve it, not to everyone,” Amer told reporters.
The government has introduced a smart card system that will limit access to subsidised goods to low-income families.
In Cairo, the frustration is palpable.
“For the last three months, I haven’t bought any item twice for the same price,” said engineer Mohammed Mohammed, 59.
“Our income is the same but the prices keep going up. I expect prices to rise more once we get the IMF loan.”
Flour and sugar are 50 percent more expensive than last year, and the price of vegetables like cucumbers and potatoes has more than doubled.
— Fears IMF loan will be a ‘burden on Egyptian citizens’ —
Authorities believe the loan will help restore investor confidence in Egypt where unrest that accompanied the 2011 uprising that toppled Hosni Mubarak caused a significant drop in revenue from the once-lucrative tourism industry.
Foreign reserves have plunged from $36 billion to $13 billion in two years, and the budget deficit is increasing.
President Mohamed Morsi’s administration has been plagued by unrest and deadly clashes between protesters and police, blocking efforts to build broad-based support for a programme of economic reform.
The continued unrest has also prompted credit rating agencies to downgrade Egypt.
In March, Moody’s downgraded Egypt’s government bond ratings by one notch to Caa1, a level indicating that a borrower is vulnerable to default, saying political instability had “significantly weakened” the economy. It also warned the rating outlook was negative.
The IMF loan alone will not lift Egypt out of the crisis, but it could help unlock other aid and boost confidence.
“The loan itself will not solve the economic crisis, but Egypt needs a certificate (of approval) that the economic situation is stable and it is able to refund any loans,” said Magdy Sobhi, a political economist with the Al Ahram Centre for Political and Strategic Studies.
But some believe the loan may be a curse rather than a blessing.
“The conditions of the loan will place the burden on Egyptian citizens,” said Rashad Abdo, an economics professor from Cairo University.
“They can be catastrophic. Reducing the deficit comes through reducing subsidies and raising taxes, while the currency devaluation raises the price of the dollar,” he told AFP.
Egypt imports more than 60 percent of basic goods, so local prices are linked to the dollar exchange rate.
The value of the Egyptian pound has fallen against the dollar significantly since the end of 2012.
One dollar is equivalent to 6.83 Egyptian pounds according to the central bank. But the scarcity of the dollar has bumped the price to 8.15 Egyptian pounds on the black market.
The government is on a tightrope as it takes steps to secure the loan amid concerns over potential social unrest sparked by the inevitable price hikes.