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Critics say the billions of dollars showered on Egypt by Persian Gulf Arab allies since President Abdel Fattah al-Sisi overthrew his Muslim Brotherhood predecessor in mid-2013, were wasted.
Critics say the billions of dollars showered on Egypt by Persian Gulf Arab allies since President Abdel Fattah al-Sisi overthrew his Muslim Brotherhood predecessor in mid-2013, were wasted.

Egyptians Fighting for Survival

The country now has a weaker macro/social starting point and requires deeper and, hence, more painful adjustment

Egyptians Fighting for Survival

A few years ago, Imad would not have imagined himself queuing in the Cairo sun for a weekly ration of subsidized baby milk. But rising prices mean his civil servant's salary barely lasts the month and the government is tightening its belt further.
"Electricity is up, food is up. The only thing that doesn't rise in Egypt is people's pay. Yet all they talk about is cutting subsidies," said Imad, Reuters reported.
Squeezed by economic and political turmoil since the 2011 uprising that toppled Hosni Mubarak, Egyptians are preparing for a new era of austerity.
The reforms are part of a program to cut the budget deficit and rebalance currency markets promised to the International Monetary Fund to secure $12 billion of lending over three years.
But political opposition to measures involving subsidy cuts, devaluation and new taxes while tens of millions rely on state-subsidized food, make the program ambitious.
The cost of failure, say economists, is high. The budget deficit is near 10% of GDP. Inflation is 14%. A shortage of foreign currency has hit imports.
Foreign investors are unable to repatriate profit and some are shutting shop, hit by capital and import controls imposed over the last 18 months.
Businesses are unable to secure enough foreign currency to import components or pay a premium above 40% to obtain dollars on the black market. The government talks of survival not growth, they say.

Failed Deals
Though Egypt has returned to the IMF virtually every decade since the 1970s, implementation of reforms has been mixed. Many Egyptians are uneasy with a program they see as being foreign imposed and are convinced it will hurt all but the richest.
More recently, Egypt negotiated two IMF deals that were never finalized, including a $4.8 billion loan initially agreed in 2012. The reluctance with which policymakers have previously approached reforms means investors are not rushing back yet.
Chris Jarvis, head of the IMF's Egypt mission, said those deals had failed due to a lack of political will at the top to implement reforms.

Too Hungry to Protest
Electricity prices were raised by 20-40% this month under a five-year program that will see power subsidies gradually eliminated. Petrol subsidies are next. Reforms to the bloated civil service have been passed by parliament, though heavily diluted.
But critics say change is late and leaves little breathing room. They say the billions of dollars showered on Egypt by Persian Gulf Arab allies since President Abdel Fattah al-Sisi overthrew his Muslim Brotherhood predecessor in mid-2013, were wasted.
"This support did more harm than good as it was not conditional on reform delivery, and actually removed the urgency to carry out critically-needed policy changes," VTB Capital said in a note to clients.
"Egypt now has a weaker macro/social starting point and requires deeper and, hence, more painful adjustment."
Even with regular raises, Imad's 2,000 pounds ($225) a month salary cannot keep pace with rising prices.
"We are not below the poverty line. We are below the ground.... They want us to be so preoccupied looking for bread that we think of nothing else," Imad said.

VAT Changes
The government's first test is a law proposing VAT at 14% that is being debated in parliament but faces opposition from lawmakers worried about inflation.
Delays to the VAT changes have already held up the first tranche of a $3 billion World Bank loan. The first $2.5 billion IMF payment is not linked to specific measures but subsequent installments are.
Another key issue is foreign exchange policy. Egypt has promised a more flexible exchange rate to ease the forex shortage and end the black market for dollars.
The move is certain to involve the second devaluation this year, raising inflation, but the central bank says it must first build foreign reserves from $15.5 billion to $25 billion, a figure it hopes to reach by the yearend.

 

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