A radical economic change programme inspired by the International Monetary Fund in Egypt – North Africa and the Middle East’s most populated nation – is showing early signs of backfiring.
Masses of mostly impoverished Egyptians took to the streets in March to protest about International Monetary Fund (IMF)-dictated cuts to subsidies of bread, the main staple for the country’s estimated 92 million people, a third of whom live in poverty.
Protesters rioted in several Egyptian cities to call for their ‘right for food and bread’. The Mediterranean harbour-city of Alexandria, the country’s second largest, was the hardest hit, with scenes of desperate women screaming for food for their children. Anti-government chants were also heard in several protests.
The Western-supported military government quickly backed down. But the protests had already raised the spectre of another sudden uprising: the 2011 Arab Spring, which toppled former dictator Hosni Mubarak at a time when many analysts believed he had attained an unbreakable grip on power.
The IMF programme drew immediate attention. ‘It was a lesson that not all the IMF dictates are fit for implementation,’ Mohammed Morsi, an Egyptian journalist with the state-run daily newspaper, Al-Gomhuria, says. ‘The government is doing its best to care for people and it is good that they listened immediately.’
The IMF programme, in return for a $12bn loan, includes measures designed, in the eyes of Egyptian leaders, to ease the country’s budget deficit. This will be done by raising revenue through the introduction of new income taxes, widely known to be the IMF’s favoured remedy for countries with chronic deficits, as well as selling public assets and rolling back energy and food subsidies.
In the eyes of consumers, it’s a different story. Egyptians tolerated an energy price increase early last year, but not without whispers from the disgruntled poor. The Cairo underground hiked up its fare overnight by 100 per cent. Some food items, such as sugar, cooking oil and rice, all went through periods of short supply and almost all government services fees went up as well.
But it was food subsidies, particularly bread, that triggered action in the streets. These were surprise demonstrations because the ruling military had shown such unhinged force that it was assumed there would be no more street action.
The bread subsidy cut, revoked immediately after the riots broke out, has proved to be a red line for a population already mired in poverty and buffeted by economic liberalisation programmes.
‘You can bite my heart but you cannot bite my bread,’ Gamal al-Fayomi, a grocery seller, said in reaction to the bread riots. ‘Life is becoming harder by the day. At least we had some bread to live on. Will they take this away as well?’
Egypt is, by far, the world’s largest wheat importer, with most of the grain coming from the United States. Egypt imported nearly 12 million metric tonnes in the 2015/16 wheat marketing year – well ahead of Indonesia, the second largest importer at 8.5 million.
The majority of Egypt’s 92.2 million population, like al-Fayomi, are low-income earners such as subsistence farmers, labourers or artisans. The country’s average annual per capita income is only $3,600, one tenth of neighbouring Israel’s $35,700 and much lower than $56,000 in the US.
Egypt is a middle-income country but is going through tough economic times. The country’s once lucrative tourism industry has been hit by five years of political turmoil as well as the recent rise of militancy, especially in the Sinai Peninsula. Despite massive arms and military aid from rich Arab neighbours and the US, the government of General Abdel Fattah al-Sisi hasn’t succeeded in subduing armed opposition in the Sinai, leading to fewer tourist visits, particularly to the Red Sea resorts of Sharm El Sheikh and Hurghada.
The IMF says its programme in Egypt will remedy those woes and increase growth, control inflation and create jobs, especially for young people and women, where unemployment peaks at 25.6 per cent.
Activists and analysts in Egypt say economic policy changes, implemented in exchange for World Bank and IMF support, have not succeeded in lowering inflation. In fact, over the past year, the country’s notorious inequality of wealth has become more pronounced. Some experts, such as Amr Adely, a researcher with the Carnegie Endowment for International Peace, predict simmering social instability and unrest, as evidenced by the recent riots.
“ What we are witnessing right now is the elimination of whatever economic rights remain for ordinary citizens
Researcher, Carnegie Endowment for International Peace
‘What we are witnessing right now is the elimination of whatever economic rights remain for ordinary citizens,’ Adely says. By contrast, the IMF sees its policies as a ‘rescue for Egypt’. The Washington-based lender argues that Egypt faces a shortage of foreign exchange and precariously low reserves, a high budget deficit – about 12 per cent of GDP last year – and rising debt, with general government debt at about 95 per cent of GDP.
Egypt faces long-term structural problems, including low growth, which has been at about 2.5 per cent on average over the last five years, and high general unemployment at 12.7 per cent. According to the IMF, the answer to all this is the $12bn loan along with the package of economic changes.
There are still more IMF-inspired measures to come. These are expected to cause future unrest, similar to the unexpected bread eruptions in March. For example, the Egyptian Parliament, known for rubber-stamping government policies, passed a value-added tax bill and is discussing a law to allow landlords to raise rent, with no ceiling to replace the existing law that puts caps on rent increases.
Also on the cards is a plan to slash the public sector wage bill. So far, this has been seen in the freezing of government hiring, but could soon mean firing staff and cutting down pensions. By the government’s own figures, some 5 million civil servants are ‘unneeded’. It remains to be seen if they will be fired.
If history is any judge, governments in this part of the world can interpret events perversely. The swift containment of the recent bread riots was branded a ‘success’ for the programme; a green light for more of the same measures that caused the riots in the first place.
Emad Mekay is the IBA’s Middle East Correspondent. He can be contacted at email@example.com