Egypt fosters false economic expectations

November 29, 2011

By Una Galani
The author is a Reuters Breakingviews columinst. The opinions expressed are her own.

Egypt is fostering false economic expectations. In the post-Mubarak era, the moderate Muslim Brotherhood movement’s call for “social justice” is now popular with almost every political force running for election to the country’s new parliament. But the idea is vaguely defined, and delivering the democratic dividend – with high hopes of economic improvement among the millions of poor – will be a struggle.

The removal of Mubarak has had a short-term financial cost. GDP growth is expected to slow to 1.2 percent for the fiscal year ending June, down from an average of 6 percent since 2006. Tourism and foreign direct investment, big engines of the economy, have dried up. Foreign exchange reserves have plunged, limiting the central bank’s ability to defend the currency. Any benefits from devaluation would be offset by the impact on the cost of imports such as wheat. A sudden fall in the pound could be especially messy. And the retail-driven stock market has halved in value.

Rich Egyptians expect to bear the brunt of efforts to reign in the ballooning fiscal deficit, which is heading towards 10 percent of GDP. Income and corporate taxes may be raised from flat rates of around 20 percent. Subsidies that eat up 33 percent of the budget may also be restructured so they no longer benefit the wealthy. Capital gains and property taxes could also appear.

Even if a new government makes tough decisions and adopts a social market economy, based on free-market principles but with a safety net, the poor are likely to be disappointed in the early days. Reforms may increase government revenues but will take time to implement, and the state of public finances limits the scope for higher public spending. The minimum wage has already been lifted by 67 percent and official figures point to rising unemployment, now at 11.9 percent, although many Egyptians work in the informal economy.

People will probably feel things are getting worse before they get better, whichever party takes the lead in the new parliament. As demand falls, those factory workers that are still employed want better pay and conditions. Reform needs to be accompanied by a clearer, more realistic dialogue, around economic issues. Without that, the risks of further strikes and protests are high – and that could ultimately prompt more costly unrest.

Comments

Having gone through the article I do agree with the authors deliberation of the normal facts that would most likely hit the Egyptian government which ever may be in power. Her assumption would be hundred percent correct if the army council continues any further then the last dateline.

To cut down the expenditure the government should disband the police department totally in phases and weed out people in other Ministries for corruption and other vices. The people who killed the innocent protesters should be brought to justice.

These weeding out of corrupt people of all organization should be carried out without any exception. This will open the job creation temporarily for a certain period limited time until government finds ways and means to provide a sustainable system to offer regular jobs to the job less. Under the circumstance it has to be done quickly to stop the bomb explode.

The police department should be created afresh to serve the peole.

Simultaneously the people who made money by Mubarak connection in all both in civil and army should first be asked to return back the money if they don’t then maximum punishment of death should be imposed on them after trail.

All money of Mubarak and his associated should be retrieved from foreign banks and deposited to the Egypt’s national bank. This would give the government breathing time and also time to sort out Financial and economical problems however short that time may be.

Having, said so the government should be able to hold the Army under their strict control and not share power with them as the officers of the Armed forces are already sold out to Israel and may at any moment swing back to Israeli’s arm to work for them as Mubarak did in lieu of money. Have to believe Money talks.

The Mubarak affiliated police officers if remains in the force would create often and on law and order problem which would hamper greatly the political instability and economical growth. It must be remembered that three factors are the key to country’s success in all respect. And these are Political stability, good law & order situation economical development. To achieve these three conditions the government must have to work real hard and seek help of reliable friends help.

At the end I heartily congratulate the author for presenting a thought provoking article on which eminent personalities of relevant subject can contribute to make a worthwhile presentation to a newly aspirant nation to live in a free world of Democracy.

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