[LINK] "For Egypt, the fiscal cliff is a real and present danger"

[rfmcdonald]

Egyptian economist Bessma Momani's op-ed on the perils facing the Egyptian economy is very disturbing. I've read of this sort of thing before, but I discounted it because the people writing about it didn't seem credible, having their own ideological hobby-horses with Islam and the Middle East and Arabs. Egyptian state bankruptcy would obviously be a very bad thing.

The coming fiscal meltdown is linked to the Morsi government’s continuing political and security failures, which have greatly affected confidence in the Egyptian economy. According to some accounts, Egypt lost $20- to $30-billion dollars of foreign exchange reserves in the first two years of its transition and now has only $13.5-billion left in its coffers. Hard currency is also in short supply as domestic and international investors’ trust in the government has plummeted, leading to capital flight.

The fiscal cliff did not appear out of nowhere – wealthy Egyptians and international investors have been slowly taking their savings out of the Egyptian economy for some time. From the outset of the revolution, many feared (whether they’re right or wrong remains to be seen) that the Muslim Brotherhood would soon turn to draconian economic nationalization schemes–much like Gamal Abdel Nasser did with the economic elite in the 1950s – and consequently began transferring their wealth abroad. The result? An Egyptian stock exchange that is anemic at best.

The Muslim Brotherhood has not managed to stem the outflow of confidence and funds from Egypt’s economy: As frustruation grows, wealthier Egyptians fear a government desperate to deflect public will target them in a political witch-hunt as being benefactors of Mubarak-era corruption. The Egyptian government’s recent announcement that it will fine members of the wealthy Sawiris family for unpaid taxes is a case in point. While these measures appeal to the Brotherhood’s populist base, which demands compensation for years of crony capitalism, they also warn off international investors and further alienate Egypt’s economic and financial elite.

The prices of imported goods keep fluctuating upward as the market value of the Egyptian pound declines in value. The extent of the economic uncertainty has brought the domestic economy to a standstill, as previously announced expansions of capital and investment have been stopped. Compounding the fiscal crunch is the loss of tourism income, which on average fuelled a quarter of Egypt’s economic earnings and served as a key means of capturing foreign exchange. The suspension of much Western financial aid only adds insult to injury. To put it simply, Egypt is nearing bankruptcy.