Analysis: Egypt is in for trouble with or without the IMF

Tue Mar 5, 2013 6:36am EST
 
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By Marwa Awad and David Stamp

CAIRO (Reuters) - Egypt is at risk of a "revolution of the hungry" two years after Hosni Mubarak was ousted in a popular uprising, as food and energy prices will soar with or without an IMF deal.

Failure to get the $4.8 billion loan or some other funding would have dire consequences: if Egypt keeps burning foreign currency at the rate it has done since the 2011 uprising, it will have none left in little more than a year.

But success would also stir Egypt's boiling social and political cauldron. In return for a lifeline, the International Monetary Fund will demand reform of a subsidy system that long ago became unaffordable.

The rich benefit most from the energy subsidies that exhaust state finances but the poor will suffer most if they go.

"Whether we have the IMF or not there will be difficulty ... the IMF requires certain economic reforms," said Salah Gouda, an economics professor. "If we lift subsidies right away then you are looking at a revolution of the hungry."

The economic gloom has dragged Egyptians from the high of the "Arab Spring" revolution to deepening poverty.

Constant feuding between the ruling Islamists of President Mohamed Mursi and the opposition over the future character of Egypt has heightened tensions and cast serious doubt on any hopes for a political consensus on reforming the economy.

The United States, the largest shareholder in the IMF, is worried about how the economic crisis could further destabilize a strategic ally in a turbulent region.   Continued...

 
Traders work at the Egyptian stock exchange in Cairo January 22, 2013. REUTERS/Mohamed Abd El Ghany