As 2015 comes to a close, the Egyptian economy is going through a tough time—a stark change from the optimism that peaked in March with the Sharm al-Sheikh economic conference. Official figures indicate that growth this year is slowing to close to 4 %, Egypt’s credit rating has dropped, domestic debt is nearly 90% of GDP while foreign debt rose from $43 to $46 billion this year alone, and cash reserves have dwindled to $16.8 billion.
Most important, the public continues to suffer from the triple whammy of rising prices, scarce jobs, and deteriorating public services.
Some of this is linked to factors beyond our control, like the floods in Alexandria and Beheira, the Russian jet crash, waning Gulf support, and the slowdown in global trade. But a bigger part is due to erratic state programs and policies and the absence of a clear economic vision, problems manifested in four primary contradictions.
The first is in investment. While the state has declared its determination to increase local and foreign private investment in order to boost growth, investor confidence has fallen over the past few months because of the Government's attachment to the flawed new investment law, the exponential increase in public debt, disruption in the currency market, increased government red tape, and the arbitrary harassment of businessmen, some of whom have had cases pending for years with neither conviction nor acquittal.
These combined factors have made both foreign and local investors more cautious and circumspect.
Secondly, on one hand the state has declared its continued support for popular demands for social justice and has taken some steps to back this up. It has streamlined the bread distribution system, implemented the Karama and Takaful cash transfer programs as well as a social housing project, and recently offered some foodstuffs at set prices.
But on the other hand, it lowered the income tax rate from 30 to 22.5 percent, raised the price of electricity and public transportation, and increased fees for government transactions.
More significantly, it has made no tangible progress in encouraging small and medium enterprises or reducing unemployment. Furthermore, it has allocated only 0.1 percent—just one-thousandth—of the state budget, LE820 million, to the development of informal areas while it moves ahead to build a new capital city.
Thirdly, in terms of fiscal and monetary policies, it’s not clear whether Egypt is pursuing austerity or stimulus as a policy.
One wing of the state seeks to reduce the deficit to 9% of GDP, increase tax revenue by 32% on last year, enforce a new civil service law to limit the growth in government wages, introduce a VAT, and raise interest rates. All of these are austerity policies.
But another wing of the same state is aiming for a growth rate of 5% or more by increasing public spending and implementing megaprojects whose cost and sources of funding remain unknown.
The fourth and final contradiction concerns the role of the state in the economy.
The growth projections used by the Finance Ministry and Ministry of Planning assume that the private sector is the engine of development, the source of growth, investment, employment, and export. But the state’s actual behavior belies this. It is actively intervening in the economy, implementing projects, setting prices, reclaiming land, distributing goods, and selecting investment fields.
If these actions were part of an overall socialist orientation, it would be understandable. Instead, the state is intervening in all aspects of the economy, increasing its control and domination, without a clear social component geared to the interests of poor and low-income citizens.
We face plenty of external problems and pressures, but contradictory economic policies do not help address them. They only exacerbate them and make it seem as if Egypt has three economic governments instead of one.
So what can be done?
In just a few weeks, parliament will convene, the new Central Bank governor will take over, and a new government will be formed.
The state should take this opportunity to reassess its economic path, consult with social and political actors, and make use of unexploited expertise, so that with the new year it can unveil a clearly delineated, consistent economic program that reflects specific social choices.
Sticking with the current ambiguity and contradiction in managing the economy is no longer viable.
The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.
This article was published in Arabic in El-Shorouq newspaper on Tuesday, 24 November.