In recent weeks, Egyptian headlines have been dominated by breathless coverage of the landmark parliamentary elections and the military’s violent crackdown on protesters. With the media spotlight firmly riveted on the breweing political confrontation between Egypt’s embattled military leaders and political forces hungry for a power transfer to civilians, a less visible but equally urgent economic crisis is festering beneath the surface.
With an unemployment rate of 11.8 percent, a gaping budget deficit of around $134 billion dollars, and a 24 percent decrease in tourist arrivals this year, Egypt’s economic forecast looks stormy with a chance of meltdown. Michael Singh warns that Egypt may be headed for "the dreaded combination known as stagflation," and Danya Greenfield predicts that Egypt could exhaust its Central Bank reserves within months.
What’s worse, Egypt’s complementary political and economic crises are mutually reinforcing. As Singh argues, "The rise in prices and unemployment, combined with the economic slowdown, will only serve to deepen Egypt’s already massive poverty and concomitant socioeconomic discontent, which will fuel further instability at a fragile political moment."
Egypt’s interim government is finally waking up to the severity of the crisis, but taking all the wrong steps to fix it. Rather than accept offers of external assistance, Egyptian officials are stubbornly insisting on financing the deficit with domestic borrowing and panicked spending cuts. On December 20, Egypt’s Finance Ministry hastily announced a series of new austerity measures, including the elimination of fuel subsidies for energy-intensive industries, a maximum wage for government employees, and a freeze on construction of federal buildings, aim to reduce Egypt’s LE 134 billion budget eficit by LE 20 billion. Finance Minister Momtaz al-Said said that officials will also have to forgo some professional perks and luxuries: "We’ll stop buying expensive cars," he promised.