Despite the statements and intimations that preceded it, the slate of economic measures instituted last week, and involving the floatation of the currency and increase in price of file, hit Egyptians like a lightening bolt. Maybe because they were bigger and more far-reaching than expected, or because they made concrete the depths of economic decay over the past few years, giving shape to a new economic reality that we must all come to terms with, each according to his position and circumstances.
Two questions have been asked repeatedly in recent days: Were these measures as necessary and inevitable as the government says? And were there alternative ways to deal with the current crisis that would have been less brutal for the low and middle classes? Answering these questions requires distinguishing what was possible in the current moment from what was possible before and what should be done in the future.
The move to float the pound—or more precisely, unify its price—was necessary. The perpetuation of two starkly different exchange rates is economically destructive. It caused arbitrary price hikes, brought investment to a standstill, prevented factories from importing necessary raw materials and spare parts, depressed production, prompts layoffs, and led households to speculate in dollars. This dangerous situation couldn’t continue. If anything, the state should be blamed for dragging its feet. Such a situation was not in the interest of businessmen and corporations, the middle class, workers, farmers, or the poor—unstable currency prices harm everyone. Unifying the price of the pound at its true level was not - in legal jargon - a constructive act, but an expository one, meaning that it didn’t trigger price increases itself, but instead demonstrated the real decline of our national currency and made our de facto economic reality official.
Energy price hikes are another matter. Though energy subsidies put a severe strain on the public budget and undoubtedly need to be reduced, the government had, and still has, several options when it comes to the timing, magnitude, and distribution of the increase across fuel types. The government can also take steps to ensure a fair distribution of the impact by supporting agricultural and industrial activities and public transport affected by the increases, thus offering some protection to low and middle-income groups and reining in anticipated price hikes.
Finally, the media is reporting that possible price increases in other goods and services, most importantly public transport and the metro, may follow (as of this writing, it was still unclear). These increases are absolutely not necessary now. There is a tendency in economic thinking that advocates pushing through difficult measures in one go, to get the pain over with, but this extremism ignores that we’re talking about real people and actual expenses, not simply statistics. There’s nothing wrong with incrementally correcting prices, cooperating with the public and preparing them, and taking the appropriate protective measures.
In short, this wasn't about a single do-or-die decision. It was instead a set of decisions, some of which required immediate action while others needed measures to mitigate their impact.
But one fact that both proponents and opponents of the recent measures should remember is that this situation was not inevitable. It resulted from specific economic policies adopted by the state over the last two years that increased the deficit and public debt to unsustainable levels, exhausted cash reserves, and precipitated a drop in investment, productivity, and export. This is the root of the problem, and we’re paying for it today in the form of price increases, a devalued national currency, and job scarcity.
Again, my goal here is not to criticize for its own sake or prove a theoretical point. It’s to remind us of the causes of the crisis so that we can move past it and avoid making the same mistakes. We shouldn’t vent all our anger at measures that seek to address consequences while ignoring the crux of the issue.
With that in mind, we need to reconsider government spending priorities, especially megaprojects, as well as guidelines for state intervention in the economy, investment reforms that don’t involve tax breaks and exemptions, tax policy reform to limit evasion, and political reform without which economic performance will not be stabilized.
It’s odd that some measure the success of the recent economic decisions by the fact that the public accepted them without rising up in protest and with no intention to do so on November 11. But this is less an indication of the validity of the policies than of the public’s patience, their keen desire to be done with the crisis, and their willingness to shoulder even more for the sake of stability and development. It is in no way an endorsement of policies that brought us to this juncture. On the contrary, it calls on us to respect Egyptians’ patience and sacrifices and adopt different policies that acknowledge the input of the public and the parliament and society at large.
*The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.
