World Economy

Egypt Eyes Tough Reforms

Egypt Eyes Tough ReformsEgypt Eyes Tough Reforms

Egypt hopes a $12-billion financing deal with the IMF will usher in an economic turnaround but real progress hinges on a tough reform package avoided for decades to stave off unrest.

The financing over three years—deemed an endorsement to attract more foreign aid—would go together with a currency devaluation and streamlining of Egypt’s bloated subsidy system, AFP reported.

But experts warn that the loan alone would serve as little more than an “aspirin” and a stopgap for a deep-rooted economic malaise.

In a country where many rely on state subsidized bread and imports for basic foodstuff such as wheat, inflation has already risen at a time of low foreign currency reserves and a thriving black market exchange.

More than five years after its 2011 uprising—partly fuelled by economic disparities—that swept away veteran strongman Hosni Mubarak, the country is still reeling from the fallout.

The uprising unleashed years of tumult that culminated with the military overthrow of Islamist president Mohamed Morsi in 2013 and a jihadist insurgency that has driven away tourists.

Since Morsi’s overthrow, Arab states of the Persian Gulf which opposed his Islamist movement have showered Egypt with over $20 billion in aid and investments, but that has proved to be a short-acting salve.

The government has proposed a reform package to narrow the budget deficit—about 13% of GDP—that includes cuts to power subsidies and a value added tax to raise revenue.

Subsidies account for 7.9% of total government expenditure, according to the finance ministry.

Reforms are also planned to adopt a “flexible policy” for the Egyptian pound.

With dwindling foreign reserves, the government has been propping up the currency at 8.88 pounds to the dollar, well below the black market price, while imposing capital controls.