Egypt’s Economic Crisis Pushes Ebeid Government to the Brink
Albawaba.com – Cairo
Political and economic observers in Cairo on Monday predicted an imminent cabinet reshuffle as a result of the political leadership’s dissatisfaction with Prime Minister Atef Ebeid’s failure to resolve the ongoing economic crisis.
The Egyptian premier made a surprise visit to the central bank on Monday to follow up on the results of new government measures to stamp out illegal currency trading.
Government investigators have already shut down eight exchange companies and arrested several people on charges of illegal currency trading.
Nevertheless, Egypt’s political leadership has received pessimistic reports on the economic situation, particularly with regard to the government’s borrowing policy.
The government is currently negotiating with a number of Arab and international funds to secure $5 billion in loans, which critics say signals a complete failure on part of the government to handle the economic crisis or create feasible projects.
The World Bank has implicitly criticized the government’s performance, linking its financial aid to Egypt to measures to create a warmer investment climate.
On Sunday, Egypt devalued the pound by 6.5 percent against the dollar. This was the second time in six months for the Egyptian government had devalued its currency in an attempt to solve the liquidity crisis and control the foreign exchange black market.
But the new move has not led to the desired stability, since the foreign exchange market scooped up all the dollars pumped in by the central bank in just a few hours.
Egyptian President Hosni Mubarak personally opened the floodgate for protests and criticism when he admitted for the first time last April that the economy was in crisis.
Since then, local newspapers have blasted the government, state-owned and private banks and businessmen, warning of a crisis similar to that which took place in 1997 when the president gave instructions to provide the market with 25 billion pounds ($7.5 billion). But this sum constituted only a small part of the internal debt, which reached 147.155 billion pounds ($40 billion) in 1998-1999, or about 48.7 percent of GDP. This was versus the external debt, which reached $28.2 billion at the end of 1999.
Egypt’s foreign currency reserves declined from $19.8 billion in December 1998 to $15.63 billion in December 1999, and have continued falling for 16 consecutive months as the government used them to make up for the shortage of greenbacks.
In more sobering news, the Cairo-based Al Ahram Al Masaey cited a report released by the Egyptian cabinet on June 10 as saying that bankruptcies in the commercial sector increased by 54 percent during the period between July 2000 and January 2001. The report said the number of new companies established this year decreased to 2,174 versus 2,432 for the same period last year.
Local newspapers and most analysts attributed this slowdown to the government’s highly ambitious projects and the dishonesty prevailing in the business sector. They added that the government had borrowed large sums to implement major projects, which would generate revenues only in the long run.
Many Egyptian businessmen secure loans without carrying out feasibility studies for their projects. The chairman of Al Ahram establishment, Ibrahim Nafe’, said that the borrowers had not studied ways to repay their creditors.
Ebeid has insisted that his government will pursue “economic corruption” and tax evasion, and focus on the proper use of foreign loans and aid while enhancing investments.
Sources at the Egyptian stock market said that the decline of investment in Egypt from $1.1 billion in 1997-1998 to $711 million in 1998-1999, due to vague government policies, was behind the crisis.
When the prime minister announced his agenda, he did not specify any tangible actions, but did rule out increasing the supply of money for fear of inflation, which is now estimated at three percent, and social tensions in a country where per capita income does not exceed $1,320 – Albawaba.com