CAIRO: Egypt is far from the verge of bankruptcy, despite growing economic woes the country continues to witness since the January uprising, experts said.
“You go bankrupt if your reserves reach zero. This will not happen to Egypt, we have enough instruments to borrow and make the reserves go up again,”said Alaa Ezz, secretary general of the Federation of Egyptian Industries.
“We have a global recession and we have our own internal problems, there is a local recession and that is why we need a stimulus package,” he added.
According to state news, the government would have to borrow at least $10–12 billion to stimulate the economy once again.
The International Monetary Fund, which proposed a $3 billion loan for Egypt earlier this year, postponed a scheduled visit to Egypt in December, due to recent violence and unrest, an IMF spokesperson told Daily News Egypt.
The ruling military council previously declined the loan package saying that any loans would add on to the country’s outstanding debt. However, Egypt’s current Cabinet, under the auspices of Prime Minister Kamal El-Ganzoury, announced that the loan might be back on the table.
“The IMF staff has continued to remain in close contact with the authorities since its last visit in early November on how to address Egypt’s economic challenges and how the Fund can provide support,” an IMF spokesperson said.
“In mid-December, the IMF had to postpone a planned short visit to Cairo in light of the security situation at the time; however, an IMF team is looking forward to discussions in January with the authorities on their economic program to address Egypt’s difficult economic and financial situation.”
Earlier this month, 17 people were killed in a security crackdown on protesters camped outside the Cabinet headquarters.
Ahead of the IMF’s planned visit, El-Ganzoury said the Cabinet decided to raise the social security pension from LE 150 to LE 200 starting January 2012 and to increase the number of families benefiting from the pension by adding 235,000 families, making the total 1.5 million families.
“At this stage, it is too early to discuss any specific measures, but as the Fund has consistently stated, benchmarks for any Fund supported program would need to come from a program that is designed and owned by the Egyptian authorities and enjoys the broad political support necessary for its successful implementation,” the IMF said.
According to Reuters, El-Ganzoury appealed to the Group of Eight (G8) countries on Monday to help “unlock” billions of dollars that were promised in September, under an initiative to support countries of the Arab Spring, but not yet delivered.
Ezz pointed out that the aid is pending proposals from the Egyptian government.
“We are pushing for the G8 commitments more than the IMF loan; the IMF loan is cash, but the G8 puts up money which goes towards projects. The deal now is pending our project proposals,” Ezz said.
Egypt’s stock market year-to-date change has declined 49.46 percent. The country’s foreign reserves are at $20.15 billion as of November, declining at a rate of $2 billion per month.
Ezz argued that the G8 package would be better for Egypt because the aid would be directly going to funding local projects, vital for the country’s development, thus creating more jobs.
“The only way to move the economy in the situation we are in is a stimulus package, which means you have to go into major infrastructure projects,” he said.
On the average, according to Ezz, 40-60 percent of the contents of these projects are local products and materials. This means the money flows into the market as foreign currency, goes to the reserve, and is then spent as local currency.
“The second cabinet this year increased spending and wages without increasing production. This was a de-stimulus package, so the only way to get out of what we are doing is to dump huge amounts of money into the economy,” he stressed.
Reflecting Egypt’s economic situation, Moody’s Investor Services lowered the country’s rating to B2 from B1 last week, one of many downgrades to the government’s credit ratings this year.
The agency also placed the country under review for a possible downgrade citing political instability that continues to “undermine investor confidence” as well as increasing pressure on state finances and deterioration in the country’s eternal balance of payments, and “absence of a meaningful level of exceptional, external financial support to restore confidence in the transitional period ahead of a return to civilian rule.”
Despite these risks, however, experts continue to point out that Egypt is far from bankruptcy.
“The idea that the Egyptian economy will go bankrupt and that even discussing this matter is not convincing,” said Ahmed Galal, head of the Economic Research Forum, according to a report by state media.
However, Egyptian economic experts say that the country is faring well, given the global economic recession as well as the domestic pressures it faces amid constant political tension and a rising budget deficit.
“Local and foreign debt is less than 85 percent of GDP. You have countries like Greece and Italy who are past 100 percent; we are still on the safe side compared to other nations during this crisis,” said Ezz.
Galal added that the solution to Egypt’s economic problems lies in the “management.”
The country’s unemployment problem must be solved immediately and that can be possible if there are more investments for small-scale industries, said Galal. He added that this would also help curb the country’s widening deficit.
Galal, like several economists and analysts over the past few months, said he advised the state in a national dialogue session to remove energy subsidies for factories that are energy-intensive in order to reduce state spending.
However, the idea has not yet been implemented.