Economic Policies in Egypt: Populism or Reforms?
At a roundtable event on October 24, the Hariri Center released a new issue brief authored by senior fellow Mohsin Khan and assistant director Svetlana Milbert, entitled “Economic Policies in Egypt: Populism or Reforms?”
During the roundtable, Dr. Khan argued that it is unclear what economic model will emerge in the Middle East and North Africa region following the political transitions triggered by the Arab awakening, but each country will likely pursue one of three options: 1) adopting a more populist regime; 2) continuing market-oriented economic reforms associated with former crony and corrupt regimes, or 3) muddling through with some combination of reforms and populism. Unlike the Central and Eastern European transition countries that sought integration with the European Union and had a clear economic model to strive towards, the transitioning countries in the Middle East do not have such a clear path or similar incentive mechanism for economic and political reforms.
With reference to Egypt’s economy, Dr. Khan emphasized that the new government must address economic issues in the short run in order to keep the people from coming back to protest in Tahrir Square. He argues that creating jobs has to be the first priority, coupled with improving the education system to eliminate the skills mismatch between the skills that university graduates possess and the demands of the private sector. In the long term, the government will need to promote private businesses through infrastructure development and further reduction and elimination of regulations, especially in supporting small and medium-sized enterprises (SMEs). Moving forward, the Egyptian government will also need to address the issue of reducing subsidies, particularly energy subsidies, which will be a necessary step to secure external financing to deal with its growing budget deficit. At present, the government is negotiating with International Monetary Fund (IMF) to secure a $4.8 billion loan, and the issues of subsidy reduction and other fiscal reforms will be key components of this agreement.