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Egypt faces a severe economic crisis that has not been seen since the late 1980s, when the country was on the verge of bankruptcy.
The budget deficit soared to almost LE100 billion in the first half of the current fiscal year, and is expected to exceed LE 200 billion by its end in July 2013. This means it will hover at about thirteen percent of the gross domestic product.
In the meantime, the already meager foreign reserves keep dwindling at an alarming rate. Doubts are cast on the country’s short-term ability to finance basic imports, such as fuels and foodstuff, while still serving its foreign debt. And it is noteworthy that the country’s credit rating has been recently downgraded, despite the ratification of the Constitution.
This deteriorating economic condition warns of a sweeping wave of social unrest that could deal a blow to the newly elected Islamist ruling elite. Yet this is not to assume that their detractors in the National Salvation Front (NSF) are to benefit from an Islamist showdown, given their inability to formulate a genuine discourse that could handle economic and social grievances.
The only way hitherto envisaged by the ruling party and other technocratic circles has been foreign borrowing. According to the international cooperation minister, Egypt needs US$14 billion to $15 billion in loans to fix its pressing fiscal and economic problems.
However, despite the dire need for foreign finance, the International Monetary Fund loan agreement has been indefinitely suspended following the government’s inability to apply the tax increases and subsidy reductions last December. It seems that the government is not politically capable of effecting the minimal requirements for fiscal restructuring.
Hence, no creditor is willing to pump money to finance an ever-widening deficit, with the exception of Qatar, for clear political purposes.
In such a troubled context, the parliamentary elections approach. The Muslim Brotherhood’s ability to keep things as they are and avoid any painful measures in the few months preceding the elections is doubtful.
Bear in mind that President Mohamed Morsy opted for signing the initial agreement with the IMF as early as November. The government was hoping to reach a final agreement in December so as to disburse the first tranche in January. All are signs that the fiscal situation in Egypt is unsustainable, even in the short term.
Moreover, the very fact that Morsy issued austerity measures amid the crushing political crisis of last December is another clear sign of the government’s dire need to conclude the IMF loan and start receiving foreign funding. Even though Qatar has stepped in, depositing $5 billion in the Central Bank of Egypt, the maintenance of the current fiscal deficit is unsustainable.
Given the economic hardships and the imminent austerity measures, the anti-Islamist opposition has put high hopes on the economic crisis. Many in the opposition camp are counting on the Brotherhood’s loss of popularity and on the final and long-anticipated explosion of the socioeconomic crisis in the face of the ruling Brothers.
How sound is this bet? It appears that the opposition’s betting on securing direct political gains from the economic crisis is ungrounded for many reasons. To start with, the opposition parties and groups have hardly developed any strong organizational links with the burgeoning independent labor movement.
The NSF, the biggest opposition coalition, remains heavily reliant on the support of urban-middle and upper-middle classes. The front’s political platform barely contains genuine social and economic elements.
Rather, the coalition’s main investment has been in an identity-based discourse that is based on some vaguely defined Egyptian essence against the Brothers’ Islamist propaganda. As for the deteriorating economic situation, the front’s stance has been by and large opportunistic and myopic, with very little alternatives given to austerity measures.
The NSF has proved to be no more than an anti-Islamist coalition that lacks any internal harmony. It has no comprehensive idea about the country’s socioeconomic ordeal.
So far, the powers composing the NSF have taken different economic stances. Whereas the Nasserists have shown populist leanings that are hardly sustainable, the liberals preferred to keep silent on austerity measures and the IMF loan.
Given the limitations of the NSF, any socioeconomic explosion is not likely to yield direct political gains to the anti-Brotherhood opposition, despite the fact that the Brothers are in an extremely bad situation. There is a fair chance that Egypt will witness a new wave of sociopolitical violence similar to that of January 1977.
The only difference is that such social rioting will probably take place against a weak and unconsolidated political regime, a police force that is in shambles and an army that is aloof from direct intervention.
But these forms of protest will hardly be of use to the anti-Islamist opposition, which has neither the discourse nor the organizational capacity to benefit from the looming social unrest. The potential riots are likely to be a pure loss for the broadest spectrum of the new political elites, be they ruling Islamists or secular and liberal opponents.
Worse, bread riots and social violence may bring the opposition and the Islamists together with the remnants of the authoritarian state — the police, the military and the judiciary — to establish some type of proto-fascist order in the name of social stability.
[This article originally appeared in Egypt Independent.]
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