Going back to the history of the problem, since the January 2011 upheaval; Egypt has been gripped by deepening stagflation. The conditions of having slow economic growth and high inflation has been drastically overwhelming on Egyptians and the Egyptian government. These non ending contemporary issues remain existing because of these two main issue issues which are political instability and the governments’ placement of subsidies on products such as food and fuel in which exhausted the government financially and brought deficits to it.
The impacts of the political instability had effected Egypt’s economy greatly. Initially, it drove many business men drove to convert their deposits into dollars and move money abroad, intensifying the pressure on the pound and drove foreign currency out of the country. Secondly, Egypt witnessed a massive outflow of foreign direct investment and portfolio investment because it is thought by investors that Egypt is an unsafe area to invest in, thus, and extreme loss of foreign money entering the country became an issue Egypt faces. Furthermore, political instability lead to a sharp decline in tourism, which is considered to be the most important source of foreign exchange. Moreover, the occurrence of subsidies placed by the government on products and being a country that imports 70% of its needs, is whats leading Egyptian economics to a dark path.
Now, Egypt is witnessing a funding gap of 12.7% of the total gross domestic product (GDP) because result of the poor revenues of the state and the cost of subsidies. Whereas foreign currency is currently absent in the central bank, a shortage of dollar is currently a vast issue, and their is no interests for the Egyptian pound, resulting to its devaluation everyday, which brought inflation to rise more than 14%.
Over the course of these past months, the government has proposed many failed attempted solutions such as placing high tariffs on imports and relying on national products. A second failed attempted solution imposing a limit to how much dollars a person can extract from the banks. However, non of these solutions are bringing a conclusion to the economical crises, so the government resorted to the last solution proposed by International Monetary Fund (IMF); in which the IMF will provide a loan and will provide a set of reform procedures through a programme that aims to fix the structural imbalance in the national economy, like reducing subsidies, applying the VAT, and devaluating the Egyptian pound. Economist believe that this is a long-term effect solution; the devaluation of currency will attract foreign investors to invest in Egypt hence, the interest of the Egyptian pound will increase and its value will eventually rise again.
Economists say that the course of the upcoming 4-6 month will be one of the toughest periods for Egyptians where prices of good and services will overwhelmingly increase. More than 50% of the people will suffer greatly to the extent the occurrence of a hunger strike in the poor classes.
But till now, as a matter of fact there’s nothing the Egyptians can do about it. But, we come to ask will the IMF loan be a success in solving the economical crises in Egypt, or will it lead to a deeper one?