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Egypt: austerity risks further unrest

Monday, July 21, 2014 - 02:34

A recent package of tough new austerity measures aims to reduce Egypt's public deficit to more manageable levels - but could also risk triggering further civil unrest for the country's new president, Abdel Fattah el-Sisi. Hayley Platt reports.

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A new government but the same old problems. Three years of political turmoil has seen Egypt's economy slide deeper into debt. New President, Abdel Fattah el-Sisi says he's determined to fix it. He's already raised taxes on cigarettes, alcohol and more recently on stock market gains. But it's the near 80 percent increase in energy prices that was seen as the biggest shock. Firas Abi Ali is from IHS Country Risks. SOUNDBITE: Firas Abi Ali, Manager, IHS Country Risks, saying (English): "We've seen big increases in the prices of 80 octane fuel which is the one most commonly used by the poorest strata of Egyptian society this has resulted in the increases of transportation costs and this has resulted in conflicts between public transport workers and their customers who are rejecting the price increases." Sisi wants to reduce the deficit to 10 percent of GDP in the next fiscal year. That compares to an expected shortfall of 12 percent in 2013/14. The government says the cut in fuel subsidies should help save them over $7 billion annually. And there is still room to cut further. It's a bitter pill for many Egyptians where the poorest spend more than half their income on food. Mike Ingram, BGC Partners. SOUNDBITE: Mike Ingram, market analyst, BGC Partners, saying (English): "The government's treading a very precarious line. It either fixes its finances or risks economic chaos or removes food subsidies which is what it's trying to do and risk civil unrest. So they are dammed if they do and dammed if they don't." Inflation has been a huge problem. It had been gradually falling, after surging to a four-year high of 13 percent in November. But economists expect it to rise again next month. In a surprise move last week, the government raised its key rates by one per cent. That may help keep a lid on rising prices but the country still has many structural problems that need fixing. SOUNDBITE: Firas Abi Ali, Manager, IHS Country Risks, saying (English): "The quality of education is a big problem and whether or not it suits the labour market. The ability of the state to attract investments is a big issue. Political stability will really depend on how much foreign investment, particularly from Gulf countries does Egypt has managed to attract." Egypt relies on billions of dollars in aid from its Gulf allies to help stimulate the economy. But economic recovery has been sluggish. And growth forecasts this year expect it to grow at 2.5 percent at most. Well below what it needs to create enough jobs for a rapidly growing population.

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Egypt: austerity risks further unrest

Monday, July 21, 2014 - 02:34