An Economic And Financial Crisis Facing Egypt Economics Essay

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Applying for the IMF loan which had took place since the transitional government and the refusal of the controlling party Muslim Brother hood for this loan for political reasons rather than economic one is another issue, but in order to know where we stand.

Egypt Pre Crisis

According to Dr Ali Kadri, These were the economic conditions pre the revolution

Egyptian real GDP growth was on average six percent a year over the past six years (2005 -2011)

For several years back, Egypt was exporting five hundred thousand barrels of oil a day, worth nearly 15 billion dollars a year and, to boot, huge quantities of gas.

Over the last five years, average workers' remittances were high as high 6 per cent of GDP

Tourism provided an even higher rate.

Egypt attracted more than 40 billion dollars in FDI between the years 2005 and 2009, which is incidentally high relative to the African continent.

It also recorded huge market capitalization growth rates and, over the last five years, the average yearly value of the stock market was anywhere between 80 to 100 billion dollars.

Public debt as a percentage of GDP went down from one hundred percent in 2005 to around 75 percent in 2010.

The Current account deficit relative to nominal GDP was also insignificant at just one per cent last year.

Egypt's reserves could cover nearly a year of imports

the inflation rate went from around 18 percent, three years ago, to 10 per cent at the end of 2009.

Unemployment was around nine percent.

Egypt has steadily liberalised investment, ownership restrictions and trade and capital flows barriers.

It further literalised trade by doing away with quantitative controls and high tariff levels.

its monetary policy successfully targeted inflation, which is the ultimate goal of the neoliberal arsenal.

Despite this nourish economic conditions or what may seen about it but on other hand there was inequality that preserves almost 20 /80 as almost 20 % owns 80 % of the wealth. Although of high revenues from tourism and other financing instruments almost 20 % under poverty line (CIA Fact Sheet 2009) in which it aggressively increased

The foundation of the labour market was not a market where labour services would be exchanged for a wage, but a market in which cronyism and consent were reproduced by network relations. Egypt has a hunger problem: nearly a third of all children are malnourished. All this have helped that people may raise despite of the stable economic environment.

Jan 25th Revolution

According to Angus Blair, founder of The Signet Institute, said, "Not expecting the reduction of the political will society, politically, and the slower economy as further economic problems will be created."

Appearing uncertainty over the market damage investor's confidence in the months following the 25 January uprising, and was further reduced under the rule of the military council and the prolonged transition process. As The light at the end of the tunnel was the promise of a free and fair election culminating with a democratically elected president who would steer the economy back on track.

What has happened instead is that this uncertainty has gone from hovering threateningly above the economic stratosphere to taking root, and in turn, has struck the core of the state's finances.

Accordingly crisis started by a trial to reduce the budget deficit by Fiscal year 2011 - 2012 , the budget Gap was financed through;

Domestic Borrowing from Banks as 50 % of total deposits were presented in treasury bills and bonds, while 75% financed the state expenditures leaving little to private banking sector this resulted in high exposure to sovereign debt.

Egypt foreign exchange reserves

Egypt's budget deficit increased to EGP 91.5 billion. Egypt Bufget deficit to GDP was - 10.4% (2012). Egyptian Foregin Exchange Reserves declined since2010 it reached USD 35 Bn, in Jan 2011 it was around USD 26.5 Bn and ended 2012 by USD 15 Bn compromising the state's ability to import vital food and petroleum products. In the past two years, the central bank has burned through around US$20 billion to prop up the Egyptian pound, which has lost more than 5 percent of its value, recently hitting an eight-year low and last trading at 6.17 to the US dollar

"Egypt monstrous budget and fiscal deficit, dwindling reserves, inflationary pressure, pressure on the pound and its implications, deteriorating credit rating, inevitable and long overdue hard to swallow pills in terms of economic reforms, and near zero foreign direct investment all this and in addition to Below 2 % in Real Growth Rate

Egypt GDP

Real GDP


2 %


1.8 %



While less volatile, the more gradual devaluation will still result in higher inflation and rising food prices amid the enduring economic slowdown creating few jobs and leading to rising unemployment as it reached 12.5% by 2012

All this with an external debt to GDP ratios at 2010 it was 15.9 %, 2011 15.2% and by 2012 13.5%

While the Domestic Debt was 83% of GDP in 2011 while it increased to be 85% of GDP in 2012

What deepened funding crisis worse was Standard & Poor's recent cut of Egypt's long-term sovereign rating to 'B-' from 'B', making it more costly to borrow. As well as postponing the final approval on the US$4.8 billion International Monetary Fund loan.

All theses combining elements had deepened the Egyptian financial crisis as well as the political unrest.

But inorder to decrease the Gap of the budget deficit as well as preventing the EGP from devaluation, in addition to rescue the International Reserve we have.

All this should undertake fast assertive action, either to proceed with the implications of the Washington consensus as early discussed or Adopt Malaysian Model all this with baring in mind that almost more than 40% are under poverty line and that IMF notes that already had been discussed with Egyptian government at Elected Egyptian cabinet might end up things worse for under provity popularity.