Sisi Buying Time for Egypt’s Economy

Egypt’s economy has been a shambles since the revolution, but Abdel Fatah el-Sisi is making some progress towards reforms. As the Financial Times reports, markets are somewhat heartened:

Al-Sisi’s economic reforms plans have been criticised for being vague but in a note this week Capital Economics said his efforts to rejuvenate the economy had surpassed many expectations and that reforms taken so far “should ease some of the economy’s near-term vulnerabilities”.

Most significant was the cutting of subsidies, which account for one third of government spending. Despite the urgings of the IMF, previous governments have left subsidies well alone, fearing that cuts would spark unrest. But in July, the government announced a raft of energy price hikes, which Capital Economics estimates will trim the budget deficit by 2.5 per cent of GDP.

In addition, a $500m loan from the World Bank and a request for the IMF to undertake an Article IV consultation—a long delayed economic assessment—ahead of an investment summit next year suggested that international institutions would play a greater role in the implementation of economic policy and that al-Sisi doesn’t intend to rely solely on financing from the Gulf, which comes with little oversight.

Egypt has been on a lifeline of Gulf funding, first based on the deposed President Morsi’s receipt of $5 billion from Qatar, and now under Sisi some $17 billion from Saudi Arabia, the UAE, and Kuwait. But aid from these countries is not limitless, and although it doesn’t require fiscal oversight it obviously carries political obligations. Even if the World Bank/IMF money is a drop in the bucket compared with Gulf funding, the injections of foreign loans and aid will at least buy Sisi time to get the fiscal house in order.

Whether he can actually succeed is a different question. Sisi’s appeal to the Egyptian public lies in being the anti-revolutionary—for a people exhausted with the tumult of the Arab Spring, he promises a return to stability. And in an economy that before the revolution raked in billions in tourism, stability translates into money the moment that tourists decide it’s safe to visit the pyramids again. Sisi’s efforts so far, despite the extraordinary political oppression they’ve required, might just pull that off.

But in terms of the fundamentals, Egypt is poor because it is a corrupted, renter system dominated by the military bureaucracy and its special friends. Egypt is therefore stuck in a double-bind: It can’t reform economically beyond a certain point without undermining the political status quo, but it doesn’t want to do that.