Egypt faces a tough economic future

Answers to the questions of where to start, what to do, and how to do it are all critical for success or failure in this regard. But two economic issues in particular will be most challenging for him: restoring the country’s macroeconomic stability and meeting the needs of the Egyptian people for jobs and better living conditions.Egypt is currently in a state of fiscal lassitude. For three years now, fiscal deficit and public debt have been soaring, approaching, respectively, 14 percent and over 100 percent of gross domestic product. Continued domestic borrowing to finance the growing deficit has increasingly exposed the banking sector to government debt, crowded out private investment, and resulted in sluggish economic growth that – at an average of 2 percent a year – was barely above the population growth of 1.7 percent. Declining dollar receipts from tourism and foreign investment created balance of payment difficulties that depleted international reserves and weakened national currency. These imbalances ultimately led to higher unemployment and inflation rates, and stagnant per capita income.

Three times since January 2011, Egypt attempted to negotiate an agreement with the International Monetary Fund to stabilize its battered economy, only to suspend talks before they come to fruition, mostly for fear of what an IMF-supported program could do to an already fragile socio-political domestic setting. Gulf aid disbursed after the ouster of President Mohammad Morsi from power last summer provided much-needed short-term financial respite. But this generous lifeline is not expected to last for long, as senior Gulf officials have said time and again.