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Nov 16, 2016

Major Problems Facing the Egyptian Economy


Egypt recently requested a $12,000,000,000 USD loan from the International Monetary Fund to be paid back in three years. On November 11, 2016, the request was approved, and the first payment to Egypt, totaling $2.75 USD, will be delivered on November 15, 2016. Furthermore, the Egyptian government has already implemented the conditions imposed by the bank. These conditions include floating the Egyptian pound and cutting subsidies on fuel. However, while the government has not totally removed fuel subsidies, they have increased the price, which will save $22 billion E. L. annually, finally helping to decrease the budget deficit that has persisted for over forty years. The fuel subsidies will be totally removed.

Due to the lack of economic development during the forty-year period prior to the 2011 Egyptian Revolution, the government continued to borrow money to provide basic services.

Recently, the Egyptian Census Department estimated the national debt at 2.3 trillion E.L and the foreign debt at $68 billion. The yearly interest on both debts is 290 billion E. L per year which is the largest portion of the $930 billion E. L. government budget. The second largest portion of the government budget is 230 billion E. L. in the salary of seven million government employees.

The third largest portion of the budget is the 210 million E. L. subsidies towards fuel and food. The subsidies were originally initiated to help the poor population in Egypt, but they are the ones who benefit the least from them. Recently, Abou Baker al-Jundi, Director of the Egyptian Census Department, stated that 77% of the wealthy people in Egypt possess ration cards while only 6% of the most poverty-stricken have no ration cards. The food subsidies are a waste of government money that ought to be reformed so that the truly destitute can get the help they need. Similar situations conform my view on the fuel subsidies. There are more than 9,000,000 privately owned cars. That segment of the population is relatively small; their cars should not be subsidized. Furthermore, fuel subsidies for industry and electrical power should be evaluated.

The forth largest portion of the government budget is 200 billion E. L. to provide services to education, health services, housing, transportation, agriculture, water, and sewage services. The services provide in these varied sectors is deplorable due to the meager money provided. For example, it is sad to say that the quality of education is very poor by any reasonable standard, as evidenced by government reports that over one third of the Egyptian population is illiterate. According to the minister of education, the problems that dominate the educational institutes are the result of forty years of the government ignoring necessary basic reforms. He pointed out that the number of students per class in many schools exceeds 140. In order to cut the number of students in class, the government needs to create more than 150,000 new classes, which could reduce the class sizes by up to half.

Such a negative situation is also prevalent in all sectors of Egyptian society. Among the major factors which contributed to the economic difficulties the government is facing is the high rate of population growth. According to a recent report issued by the Egyptian Census Department reveals that Egypt's population has reached 94 million and is projected to exceed 102 million by 2020. Egyptian population grows at a rate of 2.5% per year, meaning 2.6 million new mouths to feed each year. An urgent and effective program of Family Planning and Birth Control is badly needed to stop the deterioration of the economy. Such an idea is hardly novel. It began in the 1930's, and was officially supported after the Revolution of 1952. Nevertheless, while the program was not successful at the time, it must be re-implemented. Despite the progress which has been achieved during the past two years under the leadership of President el Sessi (especially in the areas of power production, road and house constructions and completing the Suez Canal project) the national economy remains stagnant. Nearly one third of the population lives below the poverty line and unemployment is exceedingly high. The government so far has failed to focus on industrial development. There are more than 4,000 factories that have closed with no attempt to revitalize them. Furthermore, a rise in importation and fall in exportation has led to a heavy decline in foreign currency in the central bank.
Recently, government officials reported that imports exceeded $40 billion per year, and exports decreased to $18 billion. Such a policy increased the rate of inflation which led to higher prices and shortage of basic food items such as rice and sugar.
The trade policy is influenced by traditional corruption policies that has been going on for more than forty years.

The loan granted to Egypt will enable the government to meet its obligations to pay some of its foreign debts, but it will not revive its economy. Egypt needs a major economic plan made by expert economists to save its economy, which still requires heavy financial investment and time before the economic wheel will start turning.