Egypt inches towards IMF bailout as shortages, prices enrage

CAIRO / AP

For two weeks now, the shelf once piled with bags of sugar — for better or worse Egypt’s most loved commodity — has stood empty at this grocery store in bustling downtown Cairo.
“This is nothing — they’re missing even more things in my village,” said Mahmoud Sulayman, a former army conscript from the Nile Delta now working as a store clerk. “People are not upset, they are angry!”
Economic pressures are bearing down on Egypt, with several key steps to be taken in the days ahead to secure a bailout by the International Monetary Fund at a time when goods shortages and ever-rising prices are prompting public outrage at the leadership of President Abdel-Fatah el-Sissi.
An escalating spat with main backer Saudi Arabia will likely be of less immediate importance for the economy, after Egypt announced the kingdom had already contributed much-needed funding to help meet preconditions for the loan. But the Arab world’s most populous country still needs some
additional $2 billion in foreign reserves to reach a position of strength it
agreed to with the IMF before it starts to gradually float its currency against the dollar and cut fuel subsidies, the other two main parts of the reform package the U.S.-based lender of last resort is poised to support.
With the central bank holding back its reserves for the big push, a shortage of the currency has reached epic proportions, with a single dollar costing upward of 15 pounds compared to 14 last week and an official rate of 8.9. The collapse has made an array of common imported products more expensive, and some — including spare parts, medicines, industrial goods and foodstuff — are not entering the country at all.
“It’s like a sick patient in need of medicine, and the longer you delay the worse the condition gets,” said Angus Blair of Cairo-based Pharos bank, who hopes Cairo can raise the final funds from international donors next week so the IMF can decide to release the loan.
Egypt’s economy has been battered in the five years since an uprising toppled longtime ruler Hosni Mubarak, ushering in turbulent rule first by the army, then a government, and now el-Sissi, the former general who overthrew his elected but divisive predecessor. Foreign currency reserves are being built up with help from abroad after they dwindled when tourism dried up over fears of terrorism, remittances dropped because of low oil prices, and Suez Canal revenues shrunk because of a decline in global trade. Inflation and unemployment rates are in the double digits.
Hopes are that by managing the currency’s flotation and putting dollars into circulation gradually at rates closer to the pound’s real value, the black market will ease and eventually disappear once the official value is determined by supply and demand and economic fundamentals. Another
idea would be set the official rate to
the same as the black market rate, or even overshoot it, in order to spark a flood of investment.
As part of the IMF-endorsed reform package, Egypt is expected to gradually lift state subsidies on fuel, basic services and food items, while aiming to support the poor with direct, often army-run welfare to offset the ensuing surge in inflation.
Some of the pain expected to
increase in the near term for Egypt’s
91 million people, nearly half of whom are at or near the poverty line, has already appeared.
Stores, especially state-governed cooperatives, have begun to limit purchases of certain goods like sugar, oil and rice, with sugar in particularly short supply this week. Many stores in the capital were completely out of stock, while others posted signs explaining the rationing.