Budget deficit is one of the most dangerous indicators. The year-end estimation for 2012 is 10 percent of GDP.

I was at the nineteenth annual conference of the Economic Research Forum based in Cairo. This year’s conference was held at Kuwait on 3-5 March. The main theme was “Economic Development and the Rise of Islamist Parties.” Hussein El Kazzaz, economic advisor to Egypt’s president Mohammed Morsi was one of the speakers at the third day’s plenary session. Kazzaz used to be in the academia.

I excitedly waited for his speech and honestly I was quite disappointed after it. His speech was not satisfactory. Perhaps he was uncomfortable because of his post. Briefly, he touched upon the importance of institutional structure, a fashionable rhetoric in the developmental economics literature lately. He stressed that the new government would build “inclusive” institutions and that “exclusive” ones would vanish. He did not specify how they would achieve this, however. He talked about the disincentives the old system caused.

Within this context, he cited the expenditures on summer houses used only for a month in a year, a familiar example also for Turkey. He said that the new system will avoid such disincentive mechanisms and stressed that the country wanted to make use of anyone who has the required skills and experience. The majority of the participants who asked questions to Kazzaz were Egyptians. The common view was that he did not say anything new and that he did not represent the features that distinguish Morsi and his team from their antecedents in terms of contributions to Egypt’s economic development.

I was chosen as a discussant for two studies. One is a report on the latest state of affairs for Egypt’s economy. Analyzing the data until the end of 2011, the study depicts the challenges facing the Egyptian economy. More importantly, it stresses that the economic policy in place is not promising in terms of overcoming these. Latest data on Egypt’s economy is available at IMF’s website. I want to summarize key indicators so as to clarify the picture:

GDP per capita of Egypt is 16 percent that of the US (compared to 35.5 for Turkey). Between 2000 and 2010, Egypt’s economy grew on average by 5 percent, while average growth for the last two years was only 1.9 percent. Unemployment is on the rise. Over the same period, unemployment rate increased from 9.9 percent to 13.5 percent. I visited Cairo four times in the last seven years, and I am pretty sure that the figure is not realistic. Meanwhile, inflation rate is around 11 percent.

Recently, the country has been recording current account deficit. Though not as high as what we are used to in Turkey, the deficit is quite high for Egypt’s economy: 3.4 of GDP. Budget deficit is one of the most “dangerous” indicators. The year-end estimation for 2012 is 10 percent of GDP. Moreover, primary deficit his much higher, corresponding to more than half of the budget deficit.  Net debt of the public sector is around 69 percent of GDP. Though the figure seems to be harmless, looks can be deceiving: it is quite high given the finance opportunities available for the country.

Egypt signed a stand-by agreement with the IMF in November in order to alter the outlook. Taking into account the current chaotic atmosphere, the challenge is quite big for Egypt.

This commentary was published in Radikal daily on 12.03.2013