SEATTLE — Egypt’s diminishing tourism sector, political instability and tumbling oil prices have resulted in significant amounts of systemic weaknesses in the economy. Egypt, a nation with a population of 94 million, has a synchronous poverty rate above 27 percent.
The coup d’etat of 2011 resulted directly in the abdication of President Hosni Mubarak, and ongoing unrest. Despite winning 52 percent of the vote, his successor Mohamed Morsi of the Muslim Brotherhood party was criticized for not altering the political and structural framework of his predecessor. His despotic rule and brutal fervor against protestors finally led to his own conviction and downfall in 2013.
Moreover, these extenuating circumstances have devastated Egypt’s tourism industry, following the downing of a Russian air carrier in Sharm el-Sheikh, allegedly carried out by the Islamic State (IS). This event resulted in flight bans to and from the Sinai Peninsula as people became fearful of their safety.
Bolstering the Egyptian economy is a top priority of the International Monetary Fund (IMF). The hope is that providing loans could lead to Egypt’s potential economic recovery, so the IMF has developed a $12 billion bailout program with Egypt over three years.
This could potentially counteract the beleaguered state of the tourism industry. Tourism accounts for 11.4 percent of Egypt’s GDP, but recent instability has seen a 41.9 percent plummet in tourist numbers, and the loss of $1.3 billion.
Besides financial aid, the IMF package includes major subsidy reforms and exchange rate controls to combat poverty and boost investments to Egypt. More funds will be mobilized and channeled towards households.
This policy focuses on the cornerstones of the economy, and will pave the way for Egypt’s potential economic recovery. It is distinct because it allows for the integration and collaboration with the government. This will take effect especially in the realms of social changes to introduce labor market reforms and alleviate unemployment.
Egypt’s recent involvement with the IMF is also aiding the country to make crucial financial decisions. The head of the IMF, Christine Lagard, stressed the vitality of employing a managed floating exchange policy to ensure that Egypt has more independence with its currency. In this way, the Central Bank gains because it spends less time on determining the fixed rate of exchange.
Furthermore, Egypt will also be able to increase its foreign reserves, and has already secured two billion dollars through this scheme. This strategy is necessary to meet the conditions of the IMF loan and spark a revival of the currency.
Additionally, Egypt is set to receive an aggregate $800 million from neighboring countries. Egypt’s new bilateral relations with Iran will perhaps go a long way as well.
The European Union, African Development Bank and the World Bank also pledged high sums. It is necessary to provide Egypt with the backbone to implement its social and economic reforms, thus paving the way for Egypt’s potential economic recovery.
The active role of the IMF in Egypt is noteworthy, and marks the first time since the Arab Spring where the IMF has been instrumental in building the financial and economic capabilities of nations. Egypt’s potential economic recovery heralds a new beginning of investor confidence and capacity after a period of unrest.
– Shivani Ekkanath