The government’s prescription to treat the economic recession we’re currently enduring has been a two-fold solution of increasing foreign investment and seeking more international loans. The monetary policy of maintaining the stability of the Egyptian pound against depreciation is a top priority. But how long can the state keep this up? How overvalued is the pound? Is currency devaluation inevitable?
Many have made the argument that artificially supporting the stability of the pound, via pumping in more foreign currency, is the sole protection against skyrocketing inflation. Looking at the hefty cost of keeping the currency somewhat stable since the ouster of Mubarak, one can only wonder how sustainable is such a practice on the long run.
The value of the pound dipped only 3.5 per cent against the US dollar since the February 2011, the cost of which was a staggering $20 billion, or 60 per cent of foreign reserves. Today, Egypt’s current foreign reserves stand at approximately $15 billion and the government remains nowhere near a solution to stop reserves dwindling. The government continues to seek international loans to maintain currency stability while collaterally increasing foreign debt.
Government officials continue to the reiterate the same pointless drivel of how we’re expecting more inflow of foreign currency shortly, so we should not worry about the pound depreciating.
Seeing that none of loans are being utilised constructively,it doesn’t take an expert to realise the futility of such practice. Tackling the acute problems as they arise while ignoring the systemic onesmight be sustainable on the short-term, but it’s as ineffective using one credit card to pay the bill of another. Ashort-sightedsolution to an increasingly alarming problem that can only lead to full-blown economic depression. And we’ve yet to get a whiffof a plan to tackle this impending crisis.
The lack of a comprehensive strategy to deal with this matter could be attributable to a number of reasons; the absence of a civilised framework to contain political quarrels, which fuels political instability. A dysfunctional cabinet, by and large, that evidently operates in the absence of a clear long-term vision. The overwhelming bureaucracy and the intrinsic institutional corruption, which forcibly breed more corrupt individuals, just to be able to get by.
The brazen clash between government branches, which fuels public discontent and intensifies social volatility. The ambiguity surrounding presidential decisions and the often-contradictory statements from members of the ruling party disperses any sense of unity, even if it’s nominal.
Whatever the reasons are, the economy is on a fast track to utter deterioration. The clock keeps ticking and we’re nowhere near a coherent strategy to get ahead of the curve of decline. A lesson or two could be learned from the economic qualms that loom over the Eurozone. As harsh as it may sound, adoption of strict austerity measures might be the only solution left to put the brakes on this seemingly inevitable crash.