Egypt’s economic crisis growing

Egypt's political and civil unrest is combining with economic decline to threaten the country’s future. President Muhammad Mursi’s decision to remove government subsidies from some forms of energy and to establish ration cards for gasoline has sparked popular anger.
Dozens of Egyptians were injured when thousands of supporters and opponents of Mursi’s ruling Muslim Brotherhood clashed outside party headquarters in Cairo. Opposition groups want Mursi to make political concessions, including replacing his cabinet with a national unity government — a demand Mursi has rejected.
The decision to begin rationing gas in July is expected to intensify public frustration with Mursi. Private cars will be allocated 150 liters (about 44 gallons) per month; large mass transit vehicles will be allocated 10,000 liters (2,702 gallons) of diesel per year, and heavy trucks will get 100,000 liters (27,000 gallons) of diesel per year.
Those staying within their quota will pay the government-subsidized price of 13 cents per liter for 80-octane and 26 cents for 90-octane. In comparison, a liter of gas in neighboring Israel sells for more than $ 2.00 per liter. But those requiring extra gasoline will have to pay higher prices.President Mursi has so far been unable to attract international investment and a planned International Monetary Fund (IMF) bailout of $ 4.8 billion has been put on hold because of the continuing unrest and lack of reform.
“Once again, politics will trump economics. Mursi is facing a fresh attack on his legitimacy, to which he has responded with a stick rather than a carrot,” Mohamed Darwazah, a US-based economist said. “For two years, this risky tactic has repeatedly met with defiance rather than conformity. It also leaves the government with very little help in bringing spending under control as the cost of borrowing continues to spiral and further imbalances to the economy push Egypt deeper into a balance-of-payments crisis.”
Some economists say the IMF deal will not come through without significant financial reforms in Egypt.
“Egypt needs reforms in subsidies, customs duties, tax system, and transparency,” Magda Kandil Executive Director & Director of Research at the Egypian Center for Economic Studies said. “Much of the revenue generated from the local gasoline sales is hard to track, and too many entities are involved. Medium size businesses generate profits that aren’t taxed correctly, and politics play a major role in large size businesses delaying payments or avoiding taxes.”
The Egyptian pound continues to devalue and $ 1 now buys close to 7 Egyptian pounds, up from 5.6 pounds one month ago. Theoretically, that should attract more tourists to Egypt, but the ongoing unrest is keeping many away.
Essential goods such as bread, gasoline and cooking fuel are subsidized. A source in the Ministry of Oil, who was not authorized to give his name, said the government is planning to cancel subsidies on cooking fuel as the government is losing millions of dollars each year.
“This is insane, the losses are tremendous,” he said.
Mursi has appealed to Gulf States like Qatar and Saudi Arabia to invest in Egypt. Qatar recently bought a majority share in Egyptian Bank Egyptian Bank Société General.
A total of $21 billion in loans and grants from the United States, Saudia Arabia, Qatar, Turkey, and the European Union are being promised to Egypt, but they will not come through until significant reforms are set in place. Past announcements that subsidies will be cut sparked riots in the streets among Egypt’s population of 80 million.
“Government plans to increase prices for consumers will not be rolled out before parliamentary elections,” Ossama Kamal, Egyptian Minister of Petroleum said.