In November 2016, the central bank floated the Egyptian pound, doubling the prices of most goods overnight. Subsidies for key commodities such as sugar, cooking gas and petrol have been cut, hiking prices to triple pre-IMF deal levels. Inflation soared throughout 2017, and the latest figures show an inflation rate of 26 per cent. Although the programme was announced with a carefully planned IMF public relations campaign, the austerity measures have been unpopular. In July, Mohamed Adel, a well known political activist, was detained by the police for "insulting the IMF" after criticising the changes.

The IMF appears content with Egypt's management of the austerity programme. In August, the Fund's in-house journal, GlobalMarkets, named Egypt's Central Bank governor Tarek Amer "central bank governor of the year". Meanwhile, new debts keep mounting. On 5 December, the World Bank approved a further $1.15 billion loan to Egypt as the final tranche in a total of $3.15 billion in loans.

Street trader in Cairo (photo: Abbas Alkhashali)
"The government is making some efforts to reduce the burden of cutting subsidies through income transfers to poor families, but they have only reached 2 million families and there are perhaps 15 million poor families in Egypt, so it's a very small fraction of the poor," said Alia al-Mahdi, professor of economics at Cairo University. Pictured here: a street trader in Cairo

Avoiding default

Egyptian officials are publicly confident that the debts are manageable. "Egypt has never failed in repaying its foreign debts on time," Finance Minister Amr el-Garhy told local media on 2 December in response to questioning over debt servicing in 2018.

However, independent analysts are concerned. Since the adoption of an IMF austerity programme last year, Egypt's central bank has imposed high interest rates in an attempt to control inflation rates. "This strategy might be effective in controlling inflation, but it is exposing the country to the risk of default in the Argentina or the Greek style, where the debt is in a currency which the central bank cannot print," said TIMEP's Osama Diab. "The massive debt servicing bill that is resulting from all this borrowing plus the austerity measures imposed by the IMF has led to a large decrease in real health and education spending, which will, of course, disproportionately affect the poor," Diab said.

The additional borrowing does not appear to be benefiting the country's poor, who are struggling with higher prices for basic goods. "The government is making some efforts to reduce the burden of cutting subsidies through income transfers to poor families, but they have only reached 2 million families and there are perhaps 15 million poor families in Egypt, so it's a very small fraction of the poor," said Alia al-Mahdi, professor of economics at Cairo University.

"I don't object to foreign debt in principle, but I object when it's beyond usual levels – and these are exceedingly high levels," al-Mahdi said. "We are removing the subsidies and replacing them with a new burden that exceeds that of the subsidies, which is the foreign debt."

Tom Stevenson

© Qantara.de 2018

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