Cairo will have to rethink spending

Cairo largely avoided the craze of real estate speculation that took hold in the Gulf and other markets around the world in recent years.

This was partly because its banks have only recently been allowed to offer mortgages. Nonetheless, the country probably hoped that its lack of exposure would mean that it could escape the worst after-effects of the property bubble too. But it is now clear that Egypt is suffering from the fallout just as much as every-where else.

The country's economy is heavily exposed to international markets, particularly Europe, which buys the bulk of its exports and provides more tourists than any other region.

But it is also exposed to global trade in a way that most other countries in the region are not. The Suez Canal is a key source of government income but as fewer goods are shipped between Europe and Asia, fewer vessels are paying the tariff to make their way along the waterway.

Whether Cairo can keep to its economic plans in such a climate is in question. It will be hard for the government to maintain subsidies and other spending commitments at a time when income is falling, not least because of lower oil and gas revenues.

It is not in the government's interest to pass on too much of the pain to the poorest sections of society, given how quick they were to riot over bread shortages in April last year. Nonetheless, some projects and spending plans will need to be rethought.

One positive note is that, thanks to the more careful economic stewardship of Cairo's politicians in recent years, the government is in a better position to weather the storm than it might have been. That alone is a strong argument for the current programme of reforms to continue.