The government has taken up what it describes as its “only option”: borrowing from the International Monetary Fund (IMF). Cairo reached an initial agreement with the IMF for a $12 billion assistance package over three years. The loan will, however, raise Egypt’s foreign debt to $65 billion.
Economists said the loan would do nothing to bridge the budget deficit of almost $30 billion, boost foreign currency reserves or keep the economy running.
Egypt’s foreign currency reserves have fallen to $15.5 billion, down from $36 billion in 2010. The Central Bank is losing a foreign currency battle against black market traders, even after it had devalued the national currency, the pound, by almost 30% earlier this year. The Central Bank is considering closing the nation’s foreign exchange offices and many black market foreign currency traders have been jailed.
Economists said this was an example of how monetary and financial policies are designed to treat symptoms, not the disease.
“This has been the case with everything here: The inflation, the decline in exports, the rise in imports and also the lack of foreign investment,” said Saeed Tawfiq, an economics professor at Ain Shams University. “Instead of closing down the foreign exchange offices, the government should treat these economic malaises.”
Consumer inflation in urban areas was 14.8% in July, exports fell by almost 40% last year and imports by 30%, putting pressure on foreign currency reserves.
Importers said they cannot get dollars for their deals from the banks and have to obtain them on the black market at higher rates. This is reflected in the prices of goods they import and sell in the local market.
Also significantly hurting the economy is the decline in tourism revenues that fell in the first eight months of 2016 by 74% compared with the same period last year.
“Real action must start right now if we want to rescue the economy from further deterioration,” Abdo said. “We must attract investments, reduce spending and bring tourists back or our country will be in for an economic disaster and very soon.”
This article by Cairo-based journalist Ahmed Meguid, was originally published in The Arab Weekly
THE BORGEN PROJECT OBSERVED: Cairo is a city of history and architecture, but the city is also struggling with extreme poverty. Over 40 percent of Egyptians are living below the poverty line, according to the World Bank, and as war and conflict spread through the area, that number is expected to increase. Poverty in Cairo has forced many families to put off marriage and children, or to put their young children straight to work. Many are stuck in Cairo because they simply can’t afford to live anywhere else or climb the economic ladder.
The unstable government has also contributed to the increase in poverty, but many Egyptians hope to see an established government body in the near future that offers democracy to the public.
According to the Department of Developmental Studies, or DDS, the poverty in Cairo is severely underestimated. In an essay by Sarah Sabry of the DDS, she writes that the “poverty lines are set too low in relation to the costs of the most basic of needs in the city and because census data…under-count the people living in Cairo.”
Like many countries suffering from increasing poverty, the children of the region seem to be hit the hardest. Most children do not have a well-balanced diet, which leads to growth and educational problems in the future. Many children do not attend school or educational programs either because their parents cannot afford it or the children are sent to work during the day.
Greater Cairo has eight informal settlements, and all eight have a large population living below the established poverty line. Education is poor, malnutrition rates are high and health conditions are often unsanitary. Poverty-stricken areas, known as slums, are becoming overcrowded, which causes diseases to easily spread, particularly among young or weak children.
Egypt relies heavily on tourism, which brought in approximately $13 billion in 2010. However, an impoverished Cairo is seeing less tourism and, in turn, less profit.