Egypt is making the exact decision it shouldn’t be making right now.
The country’s prime minister has said the government is holding off on reform of its costly state energy subsidy regime until it completes more studies and holds a “social dialogue” on the issue.
Egypt needs to reduce state expenditure by targeting subsidies more toward the needy, not only because it would make the entire system work properly, but it is also seen as a vital prerequisite for securing a $4.8 billion loan from the International Monetary Fund to plug a budget deficit.
Granted, it is important that politicians communicate the intricacies of a subsidies cut well with the public and with each other, but Egypt has been discussing this for months. Surely by now the “social dialogue” would have concluded that it doesn’t matter what the people say anymore, it is an integral change that must occur and no amount of “dialogue” is going to change that.
Shape up, Egypt.
The nation is now struggling to cope with a huge oil bill to foreign companies that have explored for oil and gas in the country, as Farah Halime, editor of Rebel Economy, wrote in this International Herald Tribune piece this morning.
With almost weekly changes in the decisions and policies made toward subsidies and external funding, it is no surprise that the IMF’s date to visit Cairo is also subject to enormous change. But the latest points to a possible October visit, in the last week of this month.
Don’t hold your breath, though.
Reuters wrote a good summary of what happens when Egypt fails to secure a deal with the IMF that would lend vital credibility to a new Islamist-led administration desperate for foreign investment.
Egypt’s resources are running dry and even its public relation campaigns are falling short.
The fall-out from the December [NGO] raids, including the revelation that lobbyists had been circulating Egyptian government talking points to lawmakers, led to the [lobbying] firms terminating their contracts with the Egyptians on Jan. 27. (The Egyptian embassy claimed they, not the lobbyists, ended the contracts).
Dubai’s Shuaa Capital, recently rebranded to drop the “Capital” (though that’s not going to help this indebted bank that’s been loss-making for 5 consecutive years) announced another set of dismal results yesterday. The investment bank made a second-quarter net loss of 15.9 million dirhams ($4.3 million) for the three months to June 30, as it continued its restructuring efforts and booked one-off costs associated with the process.
But the bank, which has had three CEOs in the past year, said it will focus more on growing its lending business as part of a new strategy aimed at turning around losses which have mounted since the global financial crisis.
Shuaa is one of the last surviving investment banks in the region that were badly hit from the financial crisis. Once a strong rival to EFG Hermes, after countless job cuts and restructurings, it is now a shell of a company.
Iran’s version of the UK’s Black Wednesday. That’s one way Tehran’s economy was described in this Guardian report that has caught readers’ attention, after the rial fell to a record low against the dollar.
The story conveyed an important message for Egypt, that Rebel Economy has argued:
But as central bank authorities around the world operating under fixed exchange rates know, it is futile to try to intervene in the markets to prop up a beleaguered currency. That was the lesson Norman Lamont, the former British chancellor of the exchequer, learned in 1992.
Iran’s over reliance on oil exports and harsh economic sanctions have put pressure on the currency, and distinguished it from Egypt.
But Cairo’s fragile economic situation with still very low currency reserves and yesterday’s poor decision to delay any real reform on subsidies is pointing to a more drastic consequence that could mimic Iran.
Egyptian private equity firm Citadel Capital said yesterday its consolidated second-quarter net loss narrowed to 124.2 million Egyptian pounds ($20.36 million) from a previously stated 180.5 million pounds a year earlier.