Egyptian economy needs a miracle and not just an IMF loan

Women sell vegetables at a market in Zagazig in the Nile delta. The Egyptian economy was stagnant last year. Asmaa Waguih / Reuters

It may be too early to judge the success or failure of Egypt's 2011 revolution, but this much is clear: the young people who led the uprising feel betrayed, and the Islamist government that followed is focused on consolidating power when it should be ensuring economic recovery.

The genius of the revolt was reflected in its slogan - "bread, freedom, social justice". Those words expressed an aspiration for change that created unprecedented expectations, and today the country's mounting dissatisfaction is first of all because of the underperforming economy. It is no coincidence that the first word of the uprising's slogan was bread.

Egypt's economy faces daunting challenges. Technically in a recession, the country has experienced an extended period of slow growth, a big budget deficit, declining foreign currency reserves and a widening gap in the balance of payments. The Egyptian pound is under intense pressure. Meanwhile, throughout the country more people are slipping below the poverty line.

All of these failures were reflected in the downgrading of Egypt's long-term credit rating last month by Standard & Poor's.

Such is the backdrop to the debate raging in Egypt, particularly in light of the vocal demands from private and public-sector workers for secure employment contracts and higher pay. In the absence of an overarching vision of how to address the country's economic challenges, both the government and the opposition are struggling to find a solution.

It seems that only a miracle can now rescue Egypt's economy, and indeed society, from the bleak future that it now faces. Miracles do happen, but they require vision and political will.

The much-touted programme of Nahda, or Renaissance, that the Muslim Brotherhood's ruling Freedom and Justice Party proposed as the road to recovery and prosperity after presidential elections in May and June last year, vanished into thin air. The programme is now the butt of satire from cartoonists and comedians. Any serious vision must in reality - not just on paper - address the trio of growth, employment and poverty. Egypt's GDP rose less than 2 per cent last year, roughly the same as the rate of population growth. So, in per-capita terms that matter to individual Egyptians, the economy was stagnant.

Without growth, there are no new jobs. Official data put unemployment at almost 13 per cent last year, representing 3.6 million people out of work, rising to about 25 per cent for the age group 15 to 29. That statistic alone constitutes a socioeconomic time bomb.

Slow growth, combined with rising unemployment, also explains an explosion in the unregistered economy, which now accounts for one third of the working labour force. The same causes lie behind an increase in the numbers living below the poverty line to 25 per cent, from 20 per cent in 2010. A further 22 per cent of Egyptians are at risk of falling into poverty in the event of an economic shock.

Is there a way out? There has to be, because Egypt cannot afford to delay an economic recovery any longer. The economic and social costs would be immeasurable. The starting point should be to manage the short term. A growth recovery requires immediately covering a financing gap, caused by budget and balance-of-payment deficits, of about US$14.5 billion (Dh53.26bn). Egypt's domestic means fall well short of this target. At present, the investment rate is slightly less than 17 per cent of GDP, compared with 30 per cent to 40 per cent or more in East and South East Asia.

That is why securing the $4.8bn IMF loan that the government delayed last month for political reasons is a must. Not only would an IMF agreement provide needed cash flow to the budget, it would also provide a kind of certificate to reassure investors that the government has the sound financial and monetary policies required to deal with its swelling budget deficit and public debt.

Samir Radwan was the Egyptian finance minister from January to July 2011. He was previously a board member at Egypt's General Authority for Investment and at the Financial Supervisory Authority

* Bloomberg News