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Egypt political upheaval to deepen economic crisis

Wednesday - 7/3/2013, 8:34pm  ET

FILE - In this Tuesday, June 25, 2013 file photo, Egyptian drivers wait outside in long queues at a gasoline station in Cairo, Egypt. Egypt's descent into even deeper political turmoil puts any plans for economic reforms to secure a $4.8 billion IMF loan into a dangerous limbo. If put on hold, Egyptians will likely face a deterioration in the crisis, from worsening fuel shortages and blackouts, a further depreciation of the currency and a depletion of foreign currency reserves so severe it could make importing critical oil and food items difficult.(AP Photo/Amr Nabil, File)

Associated Press

CAIRO (AP) -- Egypt's descent into even deeper political turmoil will almost certainly put a multi-billion dollar international bailout on hold and lead to an even more painful economic crisis, with worsening fuel shortages and higher prices on basic goods.


The military's overthrow Wednesday of Islamist President Mohammed Morsi will likely put the implementation of austerity measures needed to secure that loan into a dangerous limbo.

It also put the $1.5 billion in annual U.S. military and economic assistance to Egypt in question.

President Barack Obama said he's ordered his administration to review U.S. foreign aid to Egypt, saying he's "deeply concerned" by the military's move, which he didn't call a coup. By law, the U.S. must suspend aid to any nation whose elected leader is ousted in a military coup.

The military moved in after four days of huge demonstrations against Morsi. Much of the anger grew from the country's dismal economic situation and the ever-growing burden it projects on already strapped Egyptians.

Analysts said Egypt could be moving toward a worst-case scenario economically -- from increasing fuel shortages and blackouts, a sudden and sharp depreciation of the currency that will make everything more expensive, and a depletion of foreign currency reserves so severe it could make importing critical oil and food items difficult.

"I think they are sort of entering uncharted territory," said Caroline Freund, an analyst at the Peterson Institute for International Economics in Washington.

"Without political stability and policy predictability, investors and tourists are not going to come back," Freund said.





"There is no longer a middle class. They all became poor," she said. "I think this period of instability is going to be long."

Protracted fuel shortages are another source of anger and frustration. A common sight in the capital in the days before Morsi was overthrown was long lines of cars snaking around gas stations and blocking main roads in the city of about 20 million which already suffers from horrendous traffic jams.

A shortage of diesel, used by trucks and imported, is attributed to Egypt's dwindling foreign currency reserves. Other fuel shortages have been linked to corruption and sabotage. The shortages contributed to anger against Morsi.


To secure the IMF loan, Egypt is under pressure to phase out $14.5 billion a year in fuel subsidies that are a heavy drag on the budget. The government spends an additional $4 billion to subsidize food, most of it going to bread.





"Fighting unemployment and poverty is one of the essential aims of the new wave of revolution."

In the absence of an international rescue package, Egypt has relied on tens of billions of dollars of loans from wealthy Gulf countries such as Qatar and even oil-rich neighbor Libya to shore up fast-depleting foreign currency reserves, used to pay for imports and to prop up the value of the local currency.

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