Stability falls to next leadership Egypt

24 April 2014

Egypt’s new leadership must work out how to revitalise the economy while balancing political stability and electoral satisfaction

Since the ousting of President Mohamed Mursi in July last year, Egypt has been reliant on funding from Saudi Arabia, the UAE and Kuwait.

The billions of dollars flowing in from the GCC have shored up the country’s international reserves, boosted confidence and will continue to underpin the economy in the near future.

Yet Egypt must avoid becoming overly reliant on Gulf support and needs to consider how best to generate long-term economic growth itself.

The cash coming in from the GCC will not last forever. Nor will the Middle Eastern countries want to endlessly pour money into Egypt if there are few signs the country is taking action to improve its long-term investment environment.

With a new president due to be appointed in June, Egypt will need to think how it can generate growth and cut its unsustainable domestic debt burden. It can do this by tackling its ever-growing energy and food subsidies bill.

This is a hugely challenging task. Egypt has a difficult history of trying to cut subsidies, with previous attempts often resulting in violent protests.

Although Egypt’s subsidies are crippling the government’s budget, to reduce the bill is politically sensitive and could cause further rifts in a society already divided by the constant political upheaval seen since 2011.

The new president and his government will continue to heavily rely on Gulf funding to support stimulus packages and maintain some semblance of social stability.

But the government must also start figuring out how to reform its economy in a way that will not cause further social divisions.

Otherwise, if circumstances change and the Gulf pulls the plug on its funding, Cairo could find itself in even deeper economic troubles. 

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