Egypt's declining reserves and looming currency crisis could complicate the country's already tenuous political transition
A trader reacts at the Egyptian stock market in Cairo, August 11, as Egyptian stocks tumbled to two-year lows / Reuters
The economy was an important cause of Egyptian President Hosni Mubarak's overthrow. The Mubarak regime failed to deal with poverty (20 percent of the population), unemployment (more than 10 percent), lack of opportunity for a bulging youth cohort (90 percent of the unemployed were between 15-24), inflation (about 12 percent in total consumer prices, with food higher), and widespread corruption.
Since Mubarak's departure, in February, the Egyptian economy has significantly worsened, with the military leaders failing to address the burgeoning issues.
GDP growth, which had averaged about 5 percent per year at end of the last decade, is likely to be little more than 1 percent, if that, in the current fiscal year. There is a looming currency crisis, as Egypt's reserves have declined from $36 billion at the beginning of the year to $22 billion in October, with a projection of $15 billion in January. Tourism, which traditionally accounts for one in seven jobs, is down by 35 percent. Rich Egyptians have taken their money elsewhere, and foreign direct investment has dried up as lawlessness and uncertainty have spooked business. The stock market index is down more than 40 percent.
Rates of poverty, inflation, and unemployment are higher today than they were at the time of Mubarak's downfall. Fully 44 percent of all Egyptians are categorized as extremely poor to near poor, according to some estimates. At a recent conference of leading Arab financial institutions, Joseph Torbey, chairman of World Union of Arab Banks, summarized the situation in Egypt by warning, "The Arab Spring will become a rough economic winter."
Historians will have to render a more considered view on the relative importance of political and economic issues in the Egyptian uprising. There is little question that, for many, the revolt stemmed from an autocratic executive, a weak legislature, a powerful security apparatus that trampled individual rights, the arrest and torture of regime opponents, and the dominance of one party rule and rigged elections. But, as I have noted, the quest for new constitutional and political legitimacy is closely connected to a search for a new economic legitimacy.
The harsh realities of the post-revolt period have revealed the diversity of Egypt's polity, the conflicts between different groups, and the current lack of consensus on critical constitutional and policy questions: the distribution of power between governmental institutions, the balance between majority and minority rights, the impact of Sharia law, and the role of the military in government. In this period of transition, after the strong early showing at the polls of the Muslim Brotherhood and the more conservative Islamic Salafist party, it is simply not knowable how the conflicting forces in society will resolve these constitutional and political issues: secular vs. religious, military vs. civilian, Christians vs. Muslims, Muslim Brotherhood vs. Salafists, poor and unemployed vs. elites, old vs. young (45 million of Egypt's 85 million population are under 35).