After much wavering, the state finally announced an economic plan with a set of concrete fiscal and monetary measures designed to staunch the hemorrhage of the public budget and restore balance to the currency market.
Just announcing that plan is a positive step, because it allows the public to follow up, engage, and differ, all of which is needed for the nation to climb out of the current crisis. On the other hand, the state seems set on undertaking these fiscal and monetary reforms without substantially changing the larger economic or political climate, which could hinder the achievement of the plan’s objectives.
According to media reports, the economic plan includes short- and medium-term measures. In the short term, the state is relying on a $12-billion IMF loan, and additional international financing of no less than $6 billion this year, to provide the liquidity needed to bring stability to the currency market, finance immediate import needs, and fund the completion of megaprojects.
The state also intends to float the Egyptian pound, apply a value added tax, cut energy subsidies, freeze government wages, and sell off some of its assets and shares in public companies. In the medium term, the state hopes to see the return of tourism and foreign investment, boost exports, start production from Mediterranean gas reserves, and complete new infrastructure projects. This would get the economy moving again and spur the growth needed to jumpstart the Egyptian economy.
This in brief in the state’s economic vision, which sets a clearer course than we’ve seen in the past.
But while the current critical condition of the Egyptian economy leaves little room for maneuver or alternative actions in the short term, over the longer term, international loans alone will not be enough. Moreover, austerity should not remain the core state economic policy while the problems that brought us to this juncture continue to fester.
That would be like treating the symptoms of a disease while ignoring the cause. In my view, the principal dysfunctions we face are three: the economy’s capacity to grow and attract investment, accompanying social policy, and the political framework which needs radical reform. If the state does not take note of these considerations, I fear it will buy some time by pumping in liquidity and foreign currency in the short term without putting the economy on the path to recovery.
As far as the general investment climate goes, we must pursue a broad set of policies and reforms to attract investors, local and foreign, large and small alike. First and foremost, we should reconsider the vastly expanded role of the state, including the armed forces, in the economy.
This crowds out the private sector in fields that are neither military nor strategic and undermines competitiveness. We must also undertake a comprehensive review of laws pertaining to investment, one that goes beyond merely tinkering with the catastrophic investment law issued shortly before the Sharm al-Sheikh conference in 2015 or restoring the tax exemptions and incentives that cost the public treasury so much.
The goal should be to overhaul laws that govern all aspects of the formation, operation, and liquidation of firms and businesses. The state should also address the morass of red tape and the attendant corruption at all levels from an institutional perspective.
Instead of arresting an official now and then to create a media splash and appease the public, it must look at the root causes of corruption, and regulate and limit the authorities of administrative employees that provide fertile soil for its growth. Finally, it must provide the market with adequate information. Investors can adapt to many conditions, but they must be aware of state policies and be able to rely on their constancy.
In terms of social policy, the government and opposition both, as well as the general public, continue to have confused conceptions of social justice and how to achieve it. Absent this vision, we are again back to reducing social justice to state spending on pensions and subsidies while the poverty rate continues to rise.
Instead, we need to look at the sum total of public services, guarantees, and resources provided to citizens by the state and then determine if they offer the opportunity to escape poverty or instead entrench and deepen already sharp social disparities.
A simple look at the ongoing deterioration of education, health, and public transport and a lack of programs to employ youth demonstrates that the state pays inadequate attention to fighting the roots of poverty, making do with supporting those in real need with additional pensions. While these are important and necessary, they're not enough to correct the alarming social imbalance in Egyptian society.
In addition, we need to review public investment priorities, especially spending on megaproject that may have long-term economic benefits, but are sapping away major resources now and crowding out urgent needs. Renewed protests at water outages, shortages in baby milk, growing trash heaps, declining train services, and incomplete sanitation networks in villages and informal areas should alert officials to the fact that people have immediate, legitimate needs that cannot wait on long-term projects of uncertain utility.
Finally, as concerns political reform, the prevailing belief that rapid economic growth and a surge in investment can happen under a closed political system that disregards rights and liberties must be questioned. This development model is unacceptable and in any case is not replicable today, even if it worked in parts of Asia and Latin America 30 years ago.
The world, and people’s expectations and aspirations, are different today; youth of the 21st century are a different breed. There can be no economic development under laws and practices that prohibit the freedom to peaceful protest, suppress civil society, ignore security excesses and constitutional provisions, and bar popular participation in national decision making.
The belief that increased economic growth will appease the public is a grave error, one made by several regimes in the past in and out of Egypt. These experiences can’t be ignored while reverting to assumptions that do not suit the present age. Political reform must keep pace with economic reform, or even outpace it. Otherwise, society will remain restless and divided, which will impede or thwart any economic reform efforts.
We all want an economic recovery and development. What I fear is that we pursue short-term fiscal and monetary reform without working to fundamentally change the broader economic and political framework. As a result, all our efforts will be for naught and we’ll find ourselves burdened with massive debt without sustainable reform.
*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 Monday, 19 September.