What is happening should be known to almost all readers by now. Losing foreign exchange and unwilling to give up on politically popular food and energy subsidies in a context where even more civil unrest would emerge if these are removed, Egypt is going around the world--begging bowl in hand--to cadge foreign exchange to tide it over. But, for how long can it last without an IMF deal which would unlock further emergency funding? This being the IPE Zone, the "international" aspect comes from its never-ending search for money to tide it over, while the political one comes from its leadership delaying much-needed changes to set it on a more sustainable path in fear of losing in the polls. In a number of simple steps, then:
- Egypt's foreign exchange reserves have been dwindling since the Arab Spring events since the emergent lack of political order has hurt tourism and FDI;
- The natural lender would be the IMF but the institution is exceedingly unpopular at home due to Egypt being a repeat borrower during the Mubarak years;
- Moreover, the IMF is asking for long-desired reforms to do away with foreign exchange-sapping food and energy subsidies;
- Knowing the political fallout from scrapping these subsidies, the Muslim Brotherhood-dominated leadership has been wary of doing so while its leadership position remains tenuous;
- Something the Brothers are awaiting to secure their leadership is another landslide victory in parliamentary elections set to be re-run in H2 2013 (a definite date has not yet been set);
- In the meantime, Egypt is cadging any and all countries--especially energy exporters whose pricey products have caused the country so much difficulty in the first place such as Qatar, (supposedly) Libya and so on.
The AP gets most big picture details right:During a meeting in a Black Sea resort city, Egypt's president and members of his government turned to Russian President Vladimir Putin and asked for a sizable loan, according to Putin aide. Egypt's Mohammed Morsi appealed to Moscow and Cairo's past ties, recalling how the former Soviet Union stepped in to finance the building of the Aswan High Dam in the 1960s after the United States abruptly withdrew from the project, according to Russian media.Still, the Russians' response seemed rather equivocal: We'll talk later. Egypt has been knocking on doors around the region seeking billions of dollars in loans, bond purchases and grants, trying to fill rapidly draining coffers so it can keep power stations running and bakeries churning out cheap bread for the country's millions of poor.
The most crucial piece of aid, a $4.8 billion loan from the International Monetary Fund, has been delayed by months of negotiations over how Egypt will reduce its massive system of subsidies, which the poor rely on for cheap fuel and food but which suck up large portions of the budget. The government has taken some limited steps, but many economists believe it is postponing extensive reforms until after parliament elections to avoid austerity measures that could hurt Morsi's majority Muslim Brotherhood party at the polls. The problem is: No date has been set for elections, and they won't be held until the fall at the earliest. That could mean months of economic limbo, with foreign lenders and donors reluctant to give unless there is a clear economic plan. Securing the IMF loan is considered key to boosting investors' confidence in Egypt and unlocking further aid.They have no pride for Brother Morsi will beg anywhere, anytime, anyhow. Such is the fate of modern-day Egypt. I'll bet the Pharaohs are turning in their graves:
In the meantime, the government has been seeking injections of cash. Overall, Egypt has sought or is in talks for more than $30 billion since the fall of Mubarak — the vast majority since Morsi was inaugurated in June, according to a compilation by The Associated Press of what has been announced. In an email, an official in the president's office could not confirm exact numbers but said the figure is "close to accurate." The official, who was not authorized to talk to reporters and spoke on condition of anonymity, did not give further comment on economic policy...
With revenues down, the government has been burning through its foreign currency reserves, which have fallen to just $13.4 billion, a third of the pre-uprising level. Much of that has gone to propping up the currency and importing fuel and wheat for the subsidy system. Egypt spends some $14.5 billion a year in subsidizing fuel and $4 billion in food subsidies, the bulk of which goes to bread. Nearly half of Egypt's 90 million people live near or below the poverty line of $2 a day.