The Egyptian currency this week hit a record low as the country grapples with post-revolution frustrations. That means it’s becoming more expensive for the government to handle imports. Meanwhile, public disdain continues to mount as much of the country’s population lives below the poverty line.
Egyptian President Mohamed Morsi met this week with German Chancellor Angela Merkel in a visit shortened by national turmoil. Last month, the German government delayed a move to forgive $324 million in debt because of disappointment with Egypt’s political development. That same month, it emerged that Egypt would soon switch to a net natural gas importer and thus cut off a source of revenue. Two years ago, a 30-year-old dictatorship collapsed. Under the first democratically-elected government in the nation’s long history, the economy may be next.
Morsi cut his trip to Germany this week short as demonstrations meant to mark the two-year anniversary of the revolution turned violent. Morsi last year became the first president elected by a democratic vote in Egyptian history. Since then, he’s faced mounting criticism at home despite earning international praise for his role in brokering a cease-fire between Hamas militants and Israel in late 2012.
Cairo is in desperate need of financial support. This week, the Egyptian pound set a new record-low of 6.58 to the U.S. dollar. Imports, as a result, have become more expensive for a country where 40 percent of the population lives below the poverty line.
Morsi’s administration is looking for a $4.8 billion loan from the International Monetary Fund, something Merkel’s Germany is supporting. She said economic recovery was in part a solution to Egypt’s political crises and stood by Morsi, as did otherWestern powers. Germany is Egypt’s third-largest trading partner and few, if any companies, are headed for the exits.
As of 2011, the country was ranked No. 18 in the world in terms of natural gas exports. By December, however, Royal Dutch Shell said the country might need to start importing liquefied natural gas for the first time ever. By some accounts, the country is already importing natural gas, which the country uses for more than half of its electricity generation. No crude oil was purchased by the country this month and gasoline shortages have complicated political frustrations.
Egyptian army chief Abdel-Fattah el-Sissi warned that political confrontations in the country may “lead to the collapse of the state.” Two years after Egyptians exalted the end of the dictatorship of Hosni Mubarak, the country is far from addressing some of the economic woes that brought about revolution in the first place. On Wednesday, credit rating agency Fitch warned the “fiscal position has worsened” for Egypt and issued a downgrade. Without some breakthrough soon, what started as a political uprising may end with an economic collapse.
By Daniel J. Graeber, Oilprice.com