Published July 13, 2013
CAIRO (AFP) – Egypt's shattered economy was boosted this week by Gulf allies pledging billions of dollars in aid, but analysts say this simply buys time as political turmoil deepens its economic malaise.
The millions of ordinary Egyptians angered by record high unemployment, soaring inflation and chronic fuel shortages who took to the streets two weeks ago demanding Mohamed Morsi's resignation blamed him for letting the economy nosedive.
Fuel supplies have returned, after panic buying before the military coup on July 3, and three Gulf monarchies relieved at the toppling of Egypt's Islamist president have pledged $12 billion in assistance.
But dire security problems and political instability mean a return of the tourists and foreign investment that Egypt so desperately needs are a distant prospect.
And progress remains stalled on negotiations with the International Monetary Fund on a $4.8-billion loan.
"Even if they do agree on the loan, I just don't believe that we're going to see a flood of investment," said financial analyst Andrew Cunningham.
"The country has been in turmoil since 2011, there's just been a military coup and they're shooting people on the streets. This is hardly an attractive prospect."
Gulf pledges of financial assistance are a lifeline for the new administration.
Foreign reserves have fallen by almost 60 percent since the revolution that toppled Hosni Mubarak in February 2011, to 14.9 billion dollars in June -- the equivalent of just three months of imports.
Kuwait offered $4 billion in cash, loans and fuel, with Saudi Arabia contributing $5 billion and the United Arab Emirates another $3 billion.
But Cunningham warned that, while welcome, the cash injection was not a long-term solution.
"We're still talking plasters and bandages. The challenges are enormous and they are structural. Egypt's economy has been badly managed for decades, and it didn't improve under Morsi."
Illustrating the severity of the problem, the latest data from Egypt's official statistics agency shows that unemployment jumped after Mubarak's ouster and then rose steadily over the next two years to reach a record 13.2 percent in March.
Problems Egypt's new rulers will have to confront if they are to reverse the inexorable decline include corruption, poor education, a bloated public sector, low productivity and unsustainable food and fuel subsidies.
"They need to fix the entire system," said Ahmed Galal, head of the Eco Research Forum.
"It's going to be difficult to do, but it's doable, with a lot of dedication," he told AFP, adding that stability and appointing a competent government will be crucial if Egypt's economic woes are to be resolved.
This week Hazem al-Beblawi, a former finance minister and accomplished economist with long experience of working with international financial institutions, was named prime minister.
But his task of forming a national unity government was immediately complicated by Morsi's Muslim Brotherhood rejecting any offer of jobs in the new cabinet.
US intelligence firm Stratfor believes the instability goes far beyond political divisions.
It said growing poverty and joblessness, "arguably among the root causes of the uprising in 2011", was part of a "swelling trend" that motivated the recent protests.
"It is possible that the new government will find a level of stability that the increasingly isolated Muslim Brotherhood leadership was unable to sustain in the face of rising disputes with the former coalition partners and an obstructionist judiciary," it said.
But "mounting demographic and economic pressures" mean the country's new leaders will face economic challenges "that become incrementally more difficult with each passing year".
Egypt is the Arab world's most populous nation, and has witnessed an astonishing 50 percent rise in its population since 1990.
Last year it hit 84 million, "one in four of whom live below the poverty line and only survive thanks to subsidised wheat", according to agricultural expert Sebastien Poncelet.
Egypt imports about 10 million tonnes of wheat annually, with its own production supplying less than half of demand, which was 18 million tonnes in 2012.
The acute shortage of foreign currency has hampered imports over the past six months, so financial aid from the Gulf will help Cairo cover its cost in the short term.
But to be able to supply cheap bread, a key ingredient in maintaining social stability, "the economy must be able to generate sustainable income over the long-term," said Galal.