To Morsi's Allies: It's the Economy, Stupid

Egypt will fail soon. With the Muslim Brotherhood at the helm, the collapse is both inevitable and imminent.

“It’s the economy, stupid,” as someone famously said, and I’m not even going to talk about the other aspects of the Brotherhood's ineptitude. Running an economy requires a knowledge set that is substantially different from the skills needed to run a business, and it seems that the Brotherhood has no one knowledgeable enough in modern economics, much less the whole team that is needed for this.

Every working day, Egypt has an additional 2,500 unemployed. Youth unemployment is the highest in the world, at a staggering 77.5%. (Think where these frustrated youth will go.) The net foreign-currency reserves are negative, net of short-term liabilities. In fact, much of the headline gross figure consists of illiquid assets like gold, the latter evaluated at much higher levels than today’s market price. And I’m not even deducting the huge debts of the public-sector Egyptian General Petroleum Corporation when calculating net reserves.

As a result, the Egyptian pound is crashing, making life unbearably expensive for the vast majority of Egyptians because of the economy’s excessive dependence on importing most commodities. All the current regime does now is spend any foreign currency it gets to buy the essentials that Egypt desperately needs, importing wheat, fuel and other necessities. To make matters worse, the government has been raising taxes, both indirect (which hits the poor disproportionately) and direct, deepening the recession while prices keep going up. The loan discussed with the International Monetary Fund is a mere $4.8 billion (though possibly a bit more), which will only finance a couple of months and is nothing compared to the $13 billion loan obtained by Cyprus to contribute toward the rescue of its small economy.