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Economic reform can't be reached without political reform; confidence in law and justice is the way to bring investment
Marwa Hussein, Wednesday 18 May 2011
"I don't think the economic situation is as worrying as represented. Definitely there will be a cost in the short term, but in the medium and long term there will be a lot of benefits," commented Ahmed Galal, economic expert and former World Bank employee, on growing discussion of the collapse of the Egyptian economy.
On Tuesday, many newspapers published frightening headlines about the danger the Egyptian economy is facing. "No foreign investments, a decrease in tourism income, an increase of the budget deficit and the public debt. In addition, a deterioration of many indices related to social welfare like unemployment, poverty and inflation rate." That’s more or less how the Supreme Council of the Armed Forces and many media outlets summarized the economic situation in the post-revolution era. The figures presented were scary, and some were clearly wrong like the LE1290 billion budget deficit that was mentioned by Al-Masry Al-Youm, while the whole budget is not even half of that amount.
No economist clarified how the 70 per cent poverty rate was calculated, while the last figure was of 20 per cent if it is measured on the basis of one dollar daily and reaches 40 per cent on the two dollar rate. "Poverty doesn't jump that fast; I don't know on what basis this number was given", said Ahmed Galal.
On, the ground, many sectors already witnessed a high degree of recovery like automobiles and white goods, two sectors used as indicator for the wellbeing of the market this kind of purchasing is only done if consumers trust the future.
According to an article published by Al-Ahram Hebdo, in April those two sectors showed high growth rates and are close to reaching pre-revolution levels. Banks also started last month to give more credit to investors compared to the first quarter, even if the recovery in this sector is not very fast. However, the real estate sector is still in recession.
"The economic reform starts from the political one", argue Ahmed Galal. "First we need to restore security in daily life. In addition, there should be a plan for political reform that people accept," argued Ahmed Galal, adding that many are not comfortable with the actual plan of parliamentary elections followed by presidential then the elaboration of a new constitution.
"There will be fears till we reach a community consensus. The faster we are in undertaking these steps, the faster we will see changes in economic behaviour; investors and tourists will come back if there are good expectations," concluded Galal, who sees problems such as the fact that Egypt is suffering from a budget deficit as well as a deficit of the balance of payment. "It can be hard to get credits now because our credit rating went down, so the government needs to fix priorities. For example, we can't postpone spending that have to do with basic needs like subsidized food or similar things but it's not time to raise wages or recruit people in the government; the budget can't afford it now," he argues.
"The production will not be restored if the chaos continues. Production is linked to investment and investment to security and security is linked to the degree of response to the revolution's demands and the creation of a state based on law and justice", says Ibrahim El-Essawi, former official in the Ministry of Oil, adding that so far, no real change is felt.
Abdel-Khaleq Farouk, expert in economic affairs and public administration, believes that such aggrandizement of the situation hides political reasons. "First, it aims to prepare the public opinion to accept the offered financial settlements Mubarak and other big fish are offering, but that's not all; it is also a good pretext to use violence against protests and sit-ins", argues Abdel-Khaleq Farouk.
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