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Morsi brings hope of economic renewal

Update: July, 06/2012 - 09:00

by Mai Phuong

The political situation in Egypt seems to have stabilised following the election of Mohamed Morsi from the Muslim Brotherhood party to become the country's first Islamist president.

If it is right that healthy political conditions will boost economic development, and if the newly elected president can stick to his promises to work for all Egyptians, a brighter future will open to the most populous Arab Middle East economy which relies heavily on tourism but was devastated by political upheaval following the ousting of former president Muhammad Hosni Mubarak.

Let's take a comparison of the situation before and after the election.

Several weeks ago, crisis and turmoil were rife across the nation, and increasing disputes among rivalry parties resulted in waves of street protests. Civilians were divided.

The unrest resulted in a crackdown and fluctuations in economic development. Banks were shut down for more than a month. A breakdown in security tarnished the investment climate, and workers' salaries fell. In addition, the interim government failed to secure emergency aid from overseas donors. Inflation ran at 8.8 per cent, the budget deficit stood at about 144 billion Egyptian pounds (US$24 billion).

A rivalry between the government and the Islamist-dominated parliament has discouraged the International Monetary Fund from signing off on an emergency $3.2 billion loan that would support state finances and help restore investor confidence.

Now, two weeks since the election committee announced Morsi as the first civilian elected president, mass protests are no longer seen in the capital. This is proof that there has been less aggressiveness in internal political treatment as well as public civilians.

Optimism has particularly spread among the business sector and domestic media. Just one day after the 60 year-old new president,who graduated with an engineering degree from Cairo University in 1975 and received a PhD from the University of Southern California began his first full day in office, the Cairo bourse closed on an upward surge of 7.5 per cent, its highest since the uprising.

During his campaign, he echoed the determination of the Brotherhood to uphold a market economy for Egypt, as well as develop social assistance.

Two days after his confirmation as president-elect, the IMF said it is ready to help Egypt with its "significant immediate economic challenges".

After being sworn in, Morsi formally received a transfer of power and pledge of support from the military. While chairing a meeting of Egypt's outgoing cabinet, official media said they discussed security issues and the economy, as Egypt signed an accord with the Saudi-based Islamic Development Bank for US$1 billion in funding for the purchase of energy and food products, the French media AFP has reported.

The jump in Egypt's stock indexes after Morsi was declared the victor was a fairly clear signal that investors are looking for the return of a confident and stable political environment where they can predict what will happen next, said Ibrahim Saif, an economist specialising in the political economy of the Middle East.

Saif who is also a resident scholar at the Carnegie Middle East Center gave his analysis on Al-Monitor, a new media site dedicated to bringing in-depth coverage and fresh perspectives from the Middle East, saying there were good signs for the Egyptian economy, but at the same time pointed out obstacles for the new president in economic development focusing on three challenges that the president would face in the upcoming time.

According to Saif, the biggest challenge facing the new president is how to restore growth and market confidence, and how to coax investors into financing projects again, said Saif. The second challenge facing the president will be addressing the Egyptian street's high and mounting expectations.

Difficult budget

The sharp economic downturn is translating into a budget deficit and depressing state revenues. The question now is how the need for more spending can be reconciled with the desire to limit the deficit, which rose by about 10 per cent in the approved 2012-13 budget.

Managing the state budget will be one of the most difficult issues to address, especially taking into account some of the fixed public expenditure items, including salaries for about 6 million public sector employees and servicing the public debt in addition to subsidies. These items represent 78 per cent of public expenditures and not much immediately can be done about them.

The third challenge is the absence of a general framework identifying future economic trends, said the economist on Al-Monitor.

Many analysts are unclear about the role each of what Egypt's political and economic actors should play in the coming phase, adding to uncertainty. Will policies be determined by the Muslim Brotherhood's Freedom and Justice Party, or will they be controlled by the Supreme Council of the Armed Forces, which has a firm grip over Egypt's destiny? Uncertainty when it comes to who actually has what power is limiting the ability of decision makers to implement long-term reforms.

Meanwhile, Ashraf al-Sharqawy, head of the Egyptian Financial Supervisory Authority, shared his views on the prospects of thenational economy in the Egypt Independent newspaper, calling for a more optimistic approach to the future.

He said Egypt should witness improvement in its international credit rating now that the new president has been announced.

He expected the coming period to bring several positive economic measures, particularly in regards to financial and economic policies that would encourage both direct and indirect investment

Sharqawy told state-run news agency MENA Egypt's credit rating has declined over the past year, which has negatively impacted the local currency and intern-ational perceptions of Egypt's economy.

The official claimed that international rating institutions would now reconsider Egypt's credit ratings, and that he expects an improvement in light of the declaration of the new president and the stability that is predicted to follow.

He stressed the importance of supporting Morsi in reviving the economy during this period.

"Rebuilding the economy would require significant effort from political and financial forces in order to achieve stability and security, to reassure local and foreign investors and to restructure laws," the newspaper quoted Sharqawy.

Sharqawy also suggested a variety of solutions for the president including opening communications channels with foreign institutions like the World Bank, the IMF, the European Union, private investors and others.

The new Egyptian president has no time to waste. Difficult economic challenges are forcefully imposing themselves on his agenda. One and a half years since the revolution began, the Egyptian economy is still suffering from a severe downturn. If this trend continues, it could result in a serious crisis with political and social repercussions. —VNS

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