• December 27, 2012
  • 5 minutes read

Economists Dismiss Egypt Bankruptcy Claims as Political

Economists Dismiss Egypt Bankruptcy Claims as Political

"Egyptian economy in intensive care", "Egypt economy is headed towards collapse and complete bankruptcy ", "Egyptian economy is in free-fall" and "Egypt on brink of deep economic crisis" blasted some Egyptian media in the current post-referendum phase of their vicious and desperate campaign, as the country’s credit rating is reduced, with a clear negative impact on investment projects.

The purpose of this treacherous war is to hit the Egyptian economy and stop the wheel of economic development. In fact, the Egyptian economy has witnessed a relatively remarkable improvement, confirmed by a Ministry of Finance report issued in November 2012.

That report reveals an increase in state revenues amounting to 40.3% during the previous five months, to reach 108,5 billion Egyptian Pounds (approximately US$18 billion), compared with 77.4 billion pounds during the same period of the previous year.

Furthermore, tax revenues collected from the Petroleum Authority and the Suez Canal increased by 17.3% and 15.6%, respectively, recording an increase of about 5 billion pounds.

Views of a number of experts affirm the reality of the Egyptian economy. To begin with, financial analyst Mohsen Adel, vice-president of the Egyptian Society for the Study of Finance and Investment confirms that Egypt cannot fall into bankruptcy as some claim. The concept of economic bankruptcy is that the State becomes unable to pay its financial obligations and repay its debts, and its banks file for bankruptcy.

"This is not happening at all. Egypt is not lagging behind on debts inherited from the former regime in the worst economic conditions. The devaluation of the Egyptian pound during the past few weeks is about 1%, which does not represent a threat to the local currency.

"Egypt has a cash reserve and fixed income – including revenues from the Suez Canal, oil and tourism – that exceed 15 billion dollars annually."

Meanwhile, Dr. Rifaat Al-Awadi, professor of economics at Al-Azhar University said, "The bankruptcy trap fables sung so fervently by political parties and politicized media affiliated with the former regime, with chaos and confusion they create with their baseless rumors, do adversely affect the Egyptian economy and have a negative impact on our relationship with foreign markets and our international relations. They also freeze the economic market at home".

Further, Mohamed Gouda, member of the Freedom and Justice Party (FJP)’s Economic Committee, points that those promoting the idea of bankruptcy in Egypt either talk without sure knowledge or wish to undermine the country’s stability and prosperity.

"The idea of bankruptcy is based on the State’s inability to repay its external debt. This does not exist in the case of Egyptian economy. Debt is currently limited to about US$34 billion. Egypt also makes regular repayments on this debt.

"The current crisis in the Egyptian economy is manifest only in an increase in the budget deficit, which is expected to be about 180 billion Egyptian pounds this year. Additionally, public debt has increased to 135 billion Egyptian pounds. All this costs the State 230 billion pounds in external debt premiums and interest. "

Dr. Gouda stresses that, despite the severity of this crisis, Egypt has the human and material potential and resources that will enable it to achieve a great economic boom in a short period of time. He denied that the Egyptian economy will fall into bankruptcy in the near future.

"Of course, certain parties deliberately seek to mislead public opinion, spreading panic in the Egyptian society. Evidently, the goal of promoting such lies is to terrorize investors to stop investing their money in Egypt.

"In fact, Egypt’s credit rating was reduced 6 times in the past two years, since the revolution. The report on the latest reduction states that the reason for that is the unrest and turmoil in the political arena. This is reassuring, because those causes of chaos will disappear once state institutions are rebuilt and everyone returns to work and production."

Dr. Gouda further points that as soon as stability is achieved in the political situation, the World Bank loan contract is signed, and political reforms are carried out, Egypt’s credit rating will rise again, which will certainly allow an outlook of optimism for the Egyptian economy, so investment would return and conditions would generally improve without delay.