Egypt’s Economy Still Stinks, Despite the Best Efforts of the so-called “Dream Team”

Feb 03

More on Egypt’s economy: despite the massive aid package given by the axis of autocracy in support of the coup, there is still an extreme shortage of dollars, and the economy is no where close to stabilizing, much less achieving sustainable growth or a resumption of meaningful investment. The black market in hard currency, despite the best efforts of the Central Bank, appears to have entrenched itself for the near future as a fixture in the Egyptian economy, with all that implies for the fiscal health — or more accurately — the fiscal distress of the national economy.  

At the same time, inflation is in double digits, and is the highest among all developing countries at 12%.  This is a particularly cruel policy, as Egyptian treasury bills all pay interest rates that are less than the inflation rate but publicly owned banks, using public pension funds, are the primary purchasers of these T-bills that have a negative yield of between 1% (in the case of the 12 month T-Bill) and negative 2% (in the case of the 3-month T-bill).  When one takes into account that Egypt’s budget deficits are not being used to finance public infrastructure, but rather, to pay for the insatiable consumption habits of Egypt’s well-off, we see that Egyptian fiscal policy really amounts to a massive transfer of wealth from the poor to the rich in the form of hidden inflation tax and negative real interest rates on the savings of some of the most vulnerable Egyptians. You can bet that wealthy Egyptians are smart enough to save most of their wealth either in hard assets, e.g. real estate, or hard currency, so they are not affected by either of these hidden taxes.  All this is going on, despite the fact that this government has been described as “Egypt’s dream team,” with a leftist as a minister of the treasury and a social democrat as prime minister.  The problem in Egypt, as I’ve said, is not the brilliance (or lack thereof) of the government; it is a decrepit structure that lacks sufficient political capital to stop these destructive policies.

The only hope Egypt has to generate the political will sufficient to tackle these problems is to establish a representative government that fairly represents all of Egyptian society. In this regard, parliamentary elections  that can produce a credible, representative, and independent voice for the Egyptian people, are much more crucial to save the country than whoever is president. Sadly, we continue to be stuck in a mode of hero-worship, rather than recognizing that only we are capable of solving our problems, no one else, and certainly not a hero or a small group of super-intelligent technocrats.

 

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