Political risks ahead due to faltering economy

Egypt's military, in charge since an 18-day popular revolt ousted President Hosni Mubarak on Feb. 11, says it wants to hand power to civilians as soon as possible and has set a timeline for a parliamentary election that will start the process.

No one doubts the army will ensure a free and fair vote, nor do most question that it wants to quit day-to-day government.

But many protesters believe the army, with its vast business interests and which provided Egypt’s rulers for six decades, will seek to keep a hand on the levers of power. This has fuelled tension on the streets and sometimes violent clashes.

Coupled with that are tensions between groups who initially galvanised protests against Mubarak by putting nationalism above religion and the Islamists like the Muslim Brotherhood who have shown they can also mass supporters on the street.

Here are some of the main political risks ahead:

* Faltering economy:
One reason the army may be keen to get out of day-to-day government is to avoid taking the blame for the tough decisions needed to revive confidence in the battered economy. Those policies will deflate the wild expectations of many about a rapid improvement in living standards with Mubarak’s downfall.

The budget deficit has ballooned after tourists packed their bags and foreign investors fled, shaking two pillars of the economy.
The previous finance minister negotiated a $3 billion loan package with the International Monetary Fund, but after a deal with few strings attached was agreed, Egypt turned it down, in part because the army said it did not want to build up debts.

The move followed a revision of the 2011/2012 budget, cutting the forecast deficit to 8.6 per cent from 11 per cent. Economists say this is optimistic and leaves Egypt more dependent on handouts from Gulf Arab states and others.

The economy contracted in the first part of the year and will struggle to register significant growth this year. Before the uprising, the economy was heading back to the six per cent-plus growth reached before the world financial crisis.