Egypt and the IMF: A destructive relationship rekindled

Egypt and the IMF: A destructive relationship rekindled
Comment: The latest IMF deal with Egypt seems to follow on from the counter-productive and superficial policy changes that followed Mubarak's IMF-World Bank loans, writes Mohamed ElMeshad.
5 min read
01 Sep, 2016
President Sisi seems to believe that effective governance can mimic military strategy [AFP]

Recently, many local and international news outlets have been focusing on the tepid state of the Egyptian economy. While the policies of the current regime have drawn ample criticism, the structural issues that make economic illnesses appear chronic in Egypt, are definitely a legacy of the Mubarak regime, and it was these circumstances that contributed to the uprisings against him.

On 11 August, the Egyptian government signed for a massive groups of loans from the International Monetary Fund (IMF), to theoretically stabilise government finances and usher in a new era of fiscal prudence and accountability, 25 years after Mubarak's government had done the same exact thing.

If President Abdel Fattah al-Sisi's government is not careful, there will be no reason to believe that the outcome of his policies will be any different to that of his predecessor.

The first decade of this century did provide some deceptively positive economic indicators that masked serious overall deterioration, in the form of institutionalised corruption, a decreasing standard of living and greater income disparity. Proponents of the Bretton Woods institutions' neoliberal economic policies for developing countries, contented themselves with the superficial progress underway, disregarding the glaring warning signs.

The IMF, which champions the same principles of less public spending and fewer regulations had gone so far as to describe the Egyptian economy as a "success story" along with Tunisia just before the turn of the century.

Under the watchful eye of the IMF, the World Bank and eventually the EU, Egypt had begun restructuring its public spending, which resulted in profound social change. The public wage bill, for one, began decreasing. For the first time in decades, fresh graduates were no longer guaranteed employment in the public sector, which was a pledge made by Nasser.

Gradually, publicly owned companies were being restructured and sold off to private investors. Slight changes were made to the subsidies bill, although the government was always tentative in these given the direct and immediate impact they would have, as was evidenced in the 1977 Bread Riots.

Subsidies have already begun decreasing, with major hikes to the cost of electricity affecting a great deal of households

The lack of a social safety net for all the jobs lost and the necessary expenses incurred by inflation and subsidy decreases, were direct causes contributing to the building angst prior to the uprisings.

While fiscal responsibility and efficiency are desired in any government, the forced transition of a country from one school of thought to another tends to create anomalies that only grow, unless swift, positive institutional change takes hold to regulate the process.

In Egypt, the state was to forfeit the means to be paternalistic, yet insisted on remaining so. And in order for Mubarak's regime to maintain its position while the state weakened, it resorted to increased oppression and clientelism in order to both guarantee allies and isolate opposition.

The current government would be doing itself a favour were it to take the time to learn from the results of Mubarak's neglect. Despite this, it seems that decreasing public spending, and executing de-facto austerity measures has once again become the government's chosen path.

The Egyptian economy is facing serious challenges, and it certainly needs radical, and perhaps painful, policy-making in order to overcome the obstacles

Subsidies have already begun decreasing, with major hikes to the cost of electricity affecting a great deal of households. And although the currency has not been completely "liberated" to the market forces - which would possibly create a wild spike in official prices - the Egyptian pound has been devalued four times, causing concerns for increasing inflation for many markets reliant on imports.

In international forums, the government's official line is that Egypt is "unequivocally committed to the principles of market economy". This is news to most Egyptians, who are only ever told of measures and "necessities" without being informed this is in line with a vision or the ideological inclinations of the current government.

Of course, a government that was unequivocally committed, would not rely so heavily on its military as the state's main contractor, and would not involve it in so many facets of the country's economic well-being.

The Egyptian economy is facing serious challenges, and it certainly needs radical and perhaps painful, policy-making in order to overcome the obstacles. However, one thing that is needed more than anything, is the confidence of the Egyptian people in such policies.

Ever the military man, Sisi seems to believe that effective governance can mirror military strategy

This does not occur through political grandstanding, military parades and exaggerated accomplishments. It can only come the way any trust is gained: First, by showing that it will not leave the people without support or sustenance to face the consequences of their policies. And second, by showing a clear commitment to fixing the country's broken institutions that had prevented sustainable and positive policy-making in the past.

Over the past two weeks, the government has made two positive steps in line with the two points mentioned above. The Ministry of Finance last week sent directives to the different government agencies that were intended to curtail wasteful spending, discretionary compensation and the deterioration of assets through shoddy maintenance.

This could save billions, if implemented. Furthermore, Sisi ordered various ministers to hasten the implementation of social safety net programmes to help poorer Egyptians face the coming difficulties.

However, the burden of fixing the inefficiencies and corruption of government institutions - a necessary pre-requisite for any of the above policies - may prove too much to do, while simultaneously implementing the IMF recommendations for further fiscal structural readjustment.

Ever the military man, Sisi seems to believe that effective governance can mirror military strategy. Right now, he is hoping that a blitzkrieg - in which he fires on all fronts - would swiftly grant him full control over the economy, which he would then push forward with all his might. Many are waiting for him to realise that the nuances of governance are much more complicated.

Sisi would be better off tackling the core problems facing government institutions, redirecting to the poor the billions of pounds lost to wasteful spending and corruption, and gaining some real political capital that would allow for a more comprehensive set of forward-looking policies.

Mohamed ElMeshad is a journalist and a PhD candidate at SOAS, focusing on the political economy of the media. He worked extensively in Egypt, Bahrain, West Africa, the UK and US.

Recently, he contributed to the Committee to Protect Journalists’ book,
Attacks on the Press (2015).

Opinions expressed in this article remain those of the author and do not necessarily represent those of al-Araby al-Jadeed, its editorial board or staff.