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Economic reforms to the rescue?

Egypt Business's Alaa Rahman explains the importance of IMF loan and offers a plan for consumers and the government to face the crisis.

By: Alaa A. Rahman

Egypt has been kept hostage by economic restraints for the last six years and has failed thus far in reaching its potential. A lot of economists and specialists keep stressing on how Egypt has an enormous untapped potential.

To name but a small part of the latter, Egypt has a very diversified economic structure (with sectors such as agriculture, construction, manufacturing and wholesale contributing to a combined average of 13% to GDP growth), a huge bubble of youth (with more than half of the population are between the ages of 15 and 54) representing a greater economic booster the ancient land needs to utilize, and a market of 90+ million consumers, bringing investors’ thirst for tapping that market to an all-time high. Egypt has a lot to offer the world.

The reform process picked up momentum back in 2014, with a number of laws, reforms and regulations being discussed and drafted in the hopes of securing a better environment for a sustainable growth-led economy. However, that momentum slowed down quite significantly, giving a signal of complacency from the government’s part. Now, we find ourselves in deeper trouble than we already were two year ago, had we implemented the reforms back then.

An FX crunch that has hindered an already gooey and troubled economic environment, higher inflation stemmed in an uncontrolled spiral of prices due to greedy and opportunistic traders and merchants, a steep drop in tourist numbers, slow traffic in Suez Canal due to global slowdown, a struggling level of reserves due to a deficit in the overall balance of payments (we import way more than we export!), a very high deficit in the budget sector (our expenses exceed our revenues by a margin of around LE 319 billion in 16/17 alone!), a high public debt (almost reaching 98% of GDP); all these and more aspects of distress pushed the usually optimistic people of Egypt to lose confidence and trust in the government’s ability to get the economy out of its turmoil, let alone have any hope left in reaching somewhere they can call “economically safe”.

In a last bid to save what can be saved, the government reached out to the IMF with its own home-grown economic reform program to secure a $12 billion dollar package to support its budget and reform plan. And by home-grown, I mean Egyptian officials from different ministries and governmental bodies, working day in and day out for two weeks straight during the IMF mission, to put together an economic reform package, one that caters to the Egyptian needs and not – as proclaimed by various sources – dictated by the IMF. It is a race against time and a race against economic pressure, public discontent and loss of hope.

I’m not going to sugarcoat our situation: it’s tough and it’s only going to get tougher before eventually, settling down. The burden of getting Egypt out of its critical condition falls heavy just as much on us – the citizens – as much as it does on the government.

From an economic point of view, my opinion about the loan can be summarized into one sentence: “The loan is important because it stands as a testimony to the strength of the economic reform program presented by the Egyptian government, therefore bringing back international, regional and domestic confidence into the Egyptian economy once again.”
I would prefer using this opportunity to give my two cents (which I think is worth about 30 piasters with today’s black market rate) on how we as Egyptians, citizens and government officials alike, can help the economy break free from its restraints.

WHAT CITIZENS CAN DO

1) Report any unjustified price hikes by merchants and traders. You can reach out to the Consumer Protection Agency (by dialing 19588) and report any wrong doing. You could make a difference with just this one phone call.

2) Stop treating the $US like it’s a commodity. It’s not a commodity, it’s a currency! Dr. Mohamed El-Erian stressed in one of his interviews that the FX regime, while important, is neither the problem nor the solution. It’s a crack in the hull yes, but it should not be the main reason for concern. We can adjust the rate all we want but without true and solid reforms, it will be as if we did nothing.

3) Try and reach out to government officials and your representatives in Parliament if you have questions related to the current economic situation. One way of doing so is by contacting the Ministry of Finance at 02 23428010 and you will find people to answer your questions. Ask around, expand your knowledge of the situation and don’t trust everything you read on social media or the Internet unless you validate it.

4) I’m sorry that your Loacker, Nutella and Nescafe Gold won’t be within your wallet’s reach but there are very fine local substitutes to these luxurious products.

WHAT GOVERNMENT OFFICIALS SHOULD DO

1) Don’t assume that everyone understands what’s going on. People are scared, frustrated and confused enough as it is. Communications is everything. Talk to the citizens regularly! Tell them where we are, what we’re doing, where we should be at and when we’re going to get there. Otherwise they can fall prey to rumors and opportunists.

2) Give regulatory bodies more mandate to make sure markets stabilize, especially the ones responsible for managing prices and market settings. The market can't be totally free especially in a situation of reform. Supervision, regulation and correcting mistakes on a regular basis are necessary.

3) Speed in reacting to crisis especially the current economic one. The government should act faster, smarter and play to the people’s need for security (and here I mean psychological security!). This falls under point number one of regular communication with the public.

4) Fight corruption and cronyism! reforms can't be effective and things turning around if those responsible for blocking these reforms aren't eliminated. Tax the rich not just the middle class. Help the small and medium entrepreneurs get their say and build their own path. Support those in need. Talk to them logically and frankly. Reforms will never occur if the government keeps a blind eye on the fact that corruption is minimal and that everything is A-Okay.

5) Divert strategy towards encouraging latent manufacturing abilities. Diversify the economic portfolio by depending on the already diversified economy. Like I mentioned above, five sectors contribute almost 13% of GDP growth! That’s huge! Leave space for private sector to breathe and grow. Whether in telecommunications, manufacturing, infrastructure; The private sector should be the government’s partner in solidifying the economic apparatus of the country.