In what may be the congestion capital of the world, drivers in Cairo are now greeted with billboards and signs appearing to provide messages of hope like “Oh Egypt, with bold reforms we shorten the road”.
However, for Egyptians sitting in bumper-to-bumper traffic in the dusty, summer heat, with the sound of car horns bellowing in frustration from every direction, these signs may well feel like trolling.
These billboards and signs — including messages such as “Fear and skepticism lengthen the road,” as well as “Rationalise our consumption, reduce our imports” — are part of a government advertising campaign to get the public on side for wide-ranging economic reforms following a provisional agreement with the IMF last month for a $12 billion loan over three years, the biggest loan in the region.
The loan is a “financing tool”, Ahmed Kouchouk, Egypt’s Deputy Finance Minister for Fiscal Policies, told Crikey. “It’s not something that will be going to direct or to finance a specific expenditure item at all. It’s a financing item, it’s a budget support loan”.
It’s hoped the agreement will stabilise Egypt’s plummeting currency, reduce the budget deficit and government debt, encourage growth and create jobs.
Egypt is running out of money
The Egyptian government turned to the IMF after years of unrest following the 2011 revolution, which resulted in the overthrow of its autocratic president Hosni Mubarak, causing economic instability that Egypt has been unable to recover from ever since.
“Egypt has run a long-term trade deficit,” explained economist Angus Blair, chief operating officer at Pharos Holding. “Since 2011 and following the economic uncertainty, which cut investment as tourism slumped, and combined with a population growth, which has increased, the economic situation has worsened.”
“The lack of foreign currency is highly problematic, and with a rising deficit, the government needs a new economic path and support to undertake it,” he added.
The hard currency shortage is visible all over Cairo. It has caused a black market for US dollars, and in July the gap between the official rate (8.88 Egyption pounds per dollar) and the black market rate (12.57 per dollar) was at its largest.
The lack of foreign reserves has hurt Egypt’s ability to purchase imports. Mohammed Essam knows this all too well. He owns a pharmacy in Cairo’s affluent neighbourhood of Zamalek and told Crikey of his struggle to buy medicine from abroad:“I can’t now. It’s more expensive, three times the price.” Because of this, he says he has stopped buying 90% of medicine from abroad. But he also can’t find Egyptian-made medicine because “Egyptian companies don’t have the dollars to import the chemicals to make it here”.
No pain, no gain
Egyptians are being braced for more pain with a sweeping economic reform program, including subsidy cuts and taxes, which were required to secure the IMF loan — the details of which are yet to be released.
The reforms have already started.
In August, electricity prices increased by 20-40% as part of a gradual abolition of electricity subsidies under a five-year program started in 2014. The government is expected to soon turn its attention to fuel subsidies. A new “value added tax” law was passed by Egypt’s parliament at the end of August, putting it at 13% this fiscal year and rising to 14% in the next one.
“Egyptians who love their country are capable of overcoming any challenges,” Egyptian President Abdel Fattah El-Sisi told a forum of the Presidential Leadership Programme in advance of the IMF loan agreement announcement, in one of many appearances and statements of late to prepare the public for hip pocket pain — conscious of the increasing criticism over his handling of the economy.
This includes the use of the billions of dollars of aid from the oil-rich Gulf that Egypt has received since the ouster of its first democratically elected president, Islamist Mohammed Morsi, in 2013. Critics have accused the government of squandering the money on costly mega-projects like the expansion of the Suez Canal last year, the key trading channel linking the Mediterranean to the Red Sea, rather than investing in basic infrastructure projects that would benefit Egyptians more directly.
Sisi is also aware that fears subsidy cuts could result in unrest has forced previous Egyptian leaders to shrink away from an IMF loan. Additionally, some of the key grievances that led to the mass demonstrations, which brought down Mubarak in 2011 and subsequently Morsi in 2013, included the state of the economy and inequalities.
Since 2013, Egypt has had a far-reaching government crackdown on dissent and civil society, with public demonstrations virtually eliminated.
However, a recent protest by Egyptian mothers in Cairo over the shortage of subsidised baby formula, despite being small in scale, may well have served as a warning of the discontent lifting or reducing subsidies on key items might stoke.
For now though, ordinary Egyptians seeing the turmoil caused by conflicts in the rest of the region largely shrug their shoulders over the economic reforms to come.
“Syrians come to Egypt. Yemenis come to Egypt. Iraqis come to Egypt. Libyans come to Egypt. If we make a problem for this government and this country, where do we go?” asked Alaa Emam, a baker in Downtown Cairo close to Tahrir Square, the epicentre of the Egyptian Revolution.
“The government has already taken lots of money from the Gulf,” he added. “It didn’t affect us in any positive way. So we really don’t care about what’s coming with the IMF.”