is in the midst of a transition and will face democratic elections in September. But how will Egypt
’s economic challenges affect the outcome of the transition, and what is the best way for the international community to act?
As discontent continues to simmer within post-Mubarak Egypt, our report urges Egypt’s transitional leadership to tackle long-overdue economic reforms. It addresses several persistent myths about the current situation in post-revolution Egypt and the role the international community can play in assisting the transition.
Myth 1: Egypt's economy is a basket case. Wrong.
Egypt's economy is robust and diversified, and it enjoyed significant rates of economic growth prior to the revolution. Provided the newly elected government renews a commitment to improving the business environment and to redressing the fiscal deficit, there is no reason why Egypt should not grow rapidly again.
Myth 2: It is time to concentrate on politics; economic reforms have to wait. Wrong.
If the transition to democracy is to be successful, Egyptians have to establish the conditions for economic growth and for sustainable public finance. That requires reforms sooner rather than later.
Myth 3: Fiscal problems—such as subsidies—cannot be tackled any time soon. Untrue.
At the very least, fuel subsidies can and must be phased out. The subsidies are inefficient, regressive, and are an enormous burden on the country's public finance. Without addressing the problem of subsidies, the country is headed for a deep economic crisis.
Myth 4: The Egyptian government needs budget support urgently. Apparently not.
Egypt's government has already rejected soft loans from the IMF and World Bank and will instead seek to limit its spending and receive funding from Arab states. Giving the government more money now is unlikely to make a major difference to the transition. Instead, assistance needs to be channelled through direct investment in the private sector, public–private partnerships in infrastructure, and civil society.
Myth 5: The international community has done all it can do to help the transition. Untrue.
The US the EU and other external actors can and should do much more to incentivise and support economic reforms which, in turn, will support the political transition to democracy. We should foster trade and private investment. Specific forms of aid that can facilitate grass-roots development initiatives and strengthen the institutions of civil society could have a lasting impact.
Download the full Egypt's Democratic Transition: Five Important Myths About the Economy and International Assistance [PDF] report.