Egypt makes big economic push as leader-in-waiting Sisi courts Russia
| Cairo
As Egypt gears up for a presidential election in April, its military-backed government is trying to rescue the economy and inject a measure of stability, a feat that eluded its ousted predecessor. It鈥檚 a race against time, and against political uncertainty. Without economic improvement, Egypt's next leader 鈥� presumed to be Field Marshal Abdel Fattah al-Sisi 鈥� will be hard-pressed to maintain legitimacy.
When it seized power last July, the military inherited a country with dire and complex economic and social problems. Far from dissipating, the despair that fueled the 2011 uprising against a wrong-footed dictatorship has deepened in the last three years, at the same time as political polarization has sharpened. A low-level insurgency has moved its attacks beyond the restive Sinai Peninsula into Cairo, the capital.
Regardless, Egypt鈥檚 powerful Planning Ministry has put itself on the clock. By June, the end of Egypt鈥檚 fiscal year, it aims to boost economic growth, reduce state debt, and revive the ailing public sector where many Egyptians work.
鈥淲e cannot [delink] the political and economic situation,鈥� Planning Minister Ashraf El-Araby told 海角大神听in an interview at his Cairo office.听听鈥淲e are hoping to restore political stability as soon as possible, in order for the economy to grow.鈥澨�
Egypt鈥檚 challenge is huge: Growth slipped to 2听percent last year, compared to an annual average of 5 percent between 2005 and 2010 under former President Hosni Mubarak. 听Today, unemployment is 13.5 percent, up from听an average听9.8听percent during Mubarak鈥檚 final years. Youth unemployment 鈥撎齛 tripwire for instability across the developing world 鈥撎齣s now above 30 percent, according to Dr. El-Araby.
Yet the apparent appeal of Mubarak-era stability 鈥� economic growth under dictatorship 鈥� may be illusory. World Bank statistics show the distribution of national income was stagnant for much of the last two decades.听听Despite rapid growth and falling unemployment,听the听absolute听gap between rich and poor actually widened during the former dictator鈥檚听final years.听
Stimulus spending
Egypt has gotten some relief from Gulf countries that have pledged billions of dollars in grants, interest-free loans, and fuel shipments. This assistance boosted Egypt鈥檚 foreign reserves and helped to strengthen its currency. The Gulf aid also helped underpin a $4.3 billion stimulus package last fall, and an additional $4.9 billion package this week.
But the aid package raises the politically sensitive question of whether Egypt can afford to continue subsidizing听certain types of听fuel and other daily essentials, subsidies that have long been a huge drain on the public purse.听
This year, the government will spend $14.5 billion on energy subsidies alone, says Yasser Sobhi, chief of macro-fiscal policy in Egypt鈥檚 Ministry of Finance. He says the pressure is growing to reduce this burden, which mostly benefits wealthy Egyptians. 鈥淭his government is determined to implement the first phase鈥nd phase out energy subsidies gradually," he says.
The Planning Ministry is focusing on a series of labor-intensive infrastructure projects, most of which were started in 2011 but never completed. These include plans to accelerate the construction of low-income housing, finish building a new local airport, expand the public bus system, and more quickly boost the number of households connected to the country鈥檚 national gas grid, says El-Araby. 听
鈥淒uring these times, it鈥檚 even more important to stimulate than to lower public expenditures. We received good money from the Gulf, [and] look to spend it wisely on investment spending instead of current spending, such as subsidies,鈥� the planning minister says.
Egyptian听officials and members of the business community say the country鈥檚 financial woes mean the government has to grasp the third rail of economic reform, and sooner rather than later.
Angus Blair,听the head of听Cairo-based research and investment firm , says the stimulus package is an important first step. But to make a real dent in the deficit 鈥撎齨ow 14 percent of GDP 鈥撎齡rowth would need to be above 3.5 percent, up from听his听forecast of 2 percent in the year to听June 30. (El-Araby says the government is aiming for 3 percent.)
Much hinges on Egypt鈥檚 uncertain political and economic dynamics. 鈥淐hange the dynamic,鈥� Mr. Blair says, 鈥渁nd you can get growth above two percent.鈥�
Political sacrifice
Analysts say any economic gains must trickle down to ordinary Egyptians听so that last year鈥檚 military overthrow of elected president Mohammad Morsi, and the听bloody upheaval that accompanied it,听was worth the sacrifice.听
Another important constituency is Egypt鈥檚 bloated public sector, which includes sprawling state enterprises, the armed forces, and the country鈥檚 six million-strong bureaucracy.听
Last September, the interim government granted a 72 percent minimum wage increase for government workers, boosting monthly earnings to about $180 a month.听Public school students also became exempt from paying any sort of school fees or tuition.
The government also amended a law on public contracting听which allows听a minister or governor听to directly award no-bid contracts for infrastructure projects to state and military enterprises in times of emergency. The law previously capped such contracts at $45,000; the limit is now $1.5 million.
When asked why the Planning Ministry decided to circumvent the bidding process for its stimulus spending, El-Araby鈥檚 answer is simple: to save time. 鈥淲e are in a rush.听听If we succeed in implementing the stimulus package by June, the situation will be much better relative to the last three years.鈥�
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