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The Daily Star: Busy lawyers put Egypt economy overhaul on notice

Bankruptcy lawyers receive a flurry of phone calls since authorities abandoned currency controls and raised energy prices to ease dollar shortage.
08.12.16 | Interesting article at The Daily Star

Salama Faris is in demand these days, and that’s bad news for the Egyptian economy. The bankruptcy lawyer has received a flurry of phone calls since authorities abandoned currency controls and raised energy prices in an effort to ease a dollar shortage crippling the economy. Some asked about the legal consequences of defaulting on liabilities. Others were concerned that surging costs may force them to shut companies.

“Everything is becoming more expensive and many businesses are struggling,” Faris said in an interview in Cairo.

The downturn that followed the floating of the pound is hardly a surprise – economists and officials agree that re-engineering an economy battered by five years of unrest will mean some pain. The longer it lasts, however, the greater the risk of social unrest in a country where economic suffering helped spark protests that toppled two presidents since 2011.

The government is overhauling a social contract in place since the 1950s, “one where citizens offer political acquiescence in return for what has been a welfare state,” said Yasser al-Shimy, a visiting fellow at European Council on Foreign Relations. Increasing hardship while avenues for protest remain blocked creates the potential for flashpoints, “the extent of which depends on how the government handles the situation,” he said.

The pound has weakened by about 50 percent since authorities took the decision to float the currency on Nov. 3, part of a package of measures necessary to secure a $12 billion loan from the International Monetary Fund. Some economists expect inflation, already near the highest level since at least 2009, to accelerate to as much as 20 percent.

Confectionery-maker Edita Food Industries is raising prices, while cheesemaker Domty said it expects a short-term slowdown. Some drugmakers have halted production of price-controlled medicines.