Since Islamists replaced Egypt’s military dictatorship, the economic hardships that plagued the country seem to have only got worse.
Reuters reported earlier this month that the state-owned Egyptian General Petroleum Corporation had been able to buy only three million barrels of crude oil for the first quarter of this year, half of what it was seeking. The weakened Egyptian pound makes it difficult for the company to purchase enough fuel. The currency has lost more than 12 percent of its value since the 2011 uprising that toppled longtime president Hosni Mubarak and enabled the Muslim Brotherhood to take power in the Arab world’s most populous country.
The pound’s value has decreased as investors and ordinary citizens, alarmed by the economic and political instability in the country, switched their pounds into foreign currency. The central bank has already spent $21 billion, nearly two-thirds of its reserves, in a bid to prop up the currency, to little avail.
Egypt spends about a fifth of its gross domestic product on oil sales and subsidies. Asia Times Online‘s Spengler columnist, David P. Goldman, calculates that the country needs $20 billion per year simply to meet its basic demands. Its import bill, he adds, “has tripled since 2006, mainly because the cost of its most important commodities — food and energy — rose drastically.”
Its exports, meanwhile, remain a fifth below the 2008 peak due to endemic shortages of electricity and other essentials. Tourism, the country’s biggest source of foreign exchange, has dropped by about half.
It helps explain the unrest that led to Mubarak’s downfall but the incumbent Muslim Brotherhood government may be in an even more difficult position as it struggles with a deficit that is 15 percent of GDP and foreign powers are reluctant to lend to it.
Given the animosity that traditionally exists between the Islamist group and the Saudi monarchy, which the Muslim Brotherhood considers illegitimate, the oil kingdom, otherwise a generous provider of cash to fellow Arab states, is unwilling to help out. The United States suspended $1 billion in aid after violent protests outside their embassy in Cairo in September of last year.
Once it has burned through its remaining foreign reserves, Egypt will have little choice but to further devalue the pound unless it continues to rack up debts. Devaluation would further increase the price of imported goods and could cause higher inflation across the board, a problem that will be compounded by food shortages worldwide.
The American Interest‘s Walter Russel Mead predicted last year that such a crisis would “reduce the popularity of the government, much to the benefit of the radicals who hope to replace it.”
The Salafist al-Nour Party and its allies, who are backed by Saudi Arabia, currently have 25 percent of the seats in parliament compared to nearly 45 percent for the Muslim Brotherhood’s political wing and 7.5 percent for the liberals who comprise the third largest faction. If President Mohamed Morsi’s administration continues to appear inapt in dealing with the economic crisis, the radical parties could well do better in the next elections which are expected to be called in April.