Egypt Political Crisis Threatens To Worsen Economy
Until now, the Arab world's most populous nation has managed to get by on a drip feed of aid from individual donors, including the United States, which provides around $250 million in economic aid and $1.3 billion in foreign military assistance to Egypt per year.
Meanwhile, it has struggled with with low growth rates, a plunge in foreign currency reserves, and a loss of tourism revenues and foreign investment since the uprising that ousted Hosni Mubarak ushered in nearly two years of unrest.
Without the IMF loan, it will continue to rely on foreign aid â¿¿ including from wealthy Gulf states â¿¿ to avoid a possible local currency collapse or a further slowing of the economic growth desperately needed to provide jobs to its 85 million people.
But the tax hikes required by the plan are likely to be highly unpopular in a country where over 40 percent of the population lives near or below the poverty line, and the opposition has used them to rally Morsi's opponents.Several groups opposed the IMF loan â¿¿ including two Islamist-leaning parties, a number of well-known local civil society groups, and the April 6th Movement, credited with playing a key role in Egypt's uprising last year. They say that the negotiations over the agreement lacked transparency, pointing out that it took place in the absence of an elected parliament. They also say the country's new economic program targets the poor, not the rich. The nation has been deeply divided over the constitutional referendum, with the opposition planning more protests and the country's judges on strike over a decree by Morsi, since rescinded, which placed him above judicial oversight. The military is also signaling it may return to politics, leading to the possibility of even greater upheaval. "In this polarized environment, it very difficult to pass these economic decisions," said Wael Ziada from investment bank EFG-Hermes, referring to the tax hike and planned cuts to fuel subsidies. "But they must be taken whether Egypt proceeds with the IMF loan or not. The current fiscal situation is unsustainable with the ballooning debt."
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts