The Egyptian currency has plummeted in value. What experiences and lessons are worth learning from?
(Source: Caijing.com 2016Year3month31日)
3month146322_635413%, causing the exchange rate of the US dollar to the Egyptian pound to be1:7.73Falled to1:8.85, close to the black market price; at the same time, it was announced that the Egyptian pound would be decoupled from the US dollar and a floating exchange rate would be implemented. As soon as the news came out, comments such as "Egypt is going to collapse", "Emerging market countries have entered misfortune mode" and "Whose turn will be next" were flying everywhere. Has Egypt's economy really collapsed? What lessons should emerging economies learn from Egypt if they want to avoid an Egyptian pound-style "circuit breaker"?
Long-term shortage of foreign exchange reserves forces the devaluation of the Egyptian pound
2In August, Egypt's strongman President Sisi talked about Egypt's economy in a televised speech, and did not hesitate to openly "sell himself": "If selling me can solve Egypt's economic problems, I will not hesitate." Don't be afraid to watch the excitement and think it's a big deal, and some will make noisesEbayAn auction for President Sisi was launched on 7464_7488|, and the number of bids surpassed that within hours10Ten thousand dollars to counter Sisi’s remarks - Sisi may just shout to the sky: "Who dares to be worse than me?!"
The devaluation of the Egyptian pound may be an expedient measure taken by the Egyptian government as a last resort. The reason is simple: it can no longer sustain it. The so-called failure to survive does not mean that the Egyptian economy is on the verge of collapse, but that the fixed exchange rate system of the Egyptian pound pegged to the US dollar is unsustainable. Rather than struggling to support it, it is better to give up voluntarily to alleviate the foreign exchange shortage crisis.
20118163_8243360USD 100 million has shrunk by more than half, and has been declining in recent years160The US$100 million is hovering around, we can only be satisfied3Monthly import demand.
The shortage of foreign exchange has become a bottleneck restricting Egypt's economic development, directly leading to import difficulties, and restrictions on the import of raw materials have also affected industrial production and exports.20138646_8725
Past5Over the past few years, the Egyptian economy has fallen into a vicious cycle: a shortage of foreign exchange has led to difficulties in importing, which in turn has affected exports, and sluggish exports have intensified the shortage of foreign exchange. Egypt also needs to spend a lot of foreign currency to stabilize an overvalued exchange rate. The external environment is also unfavorable. The world economic recovery is sluggish. The U.S. interest rate hike, the slowdown in growth of emerging economies, and currency depreciation have intensified the pressure on the depreciation of the Egyptian pound.
If Egypt wants to break the vicious cycle and move towards recovery, Egypt first needs to restore its foreign exchange reserves to300A level of about 100 million US dollars. The Egyptian government has been working toward this goal over the past few years, but with limited success.
Lesson 1: Ignore your own structural adjustment and rely heavily on foreign aid
With its own hematopoietic ability lost, Egypt had no choice but to seek foreign aid. Egypt's initial attempts to secure a loan from the International Monetary Fund, with which Morsi's government had engaged and negotiated, fell through. One is because Egypt’s economic indicators and policies fail to meet the loan requirements of the International Monetary Fund, and the other is that the loan issue is highly controversial in Egypt. Many people believe that Egypt’s foreign debt is already as high as300With more than 100 million US dollars, if we continue to borrow money, it will be like drinking poison to quench our thirst. Egypt will never be able to repay its debts and be unable to turn over.
After Sisi came to power, he shelved the loan plan from the International Monetary Fund and instead sought foreign aid. Sisi became the leader of the "International Beggar Gang", begging for help and visiting "financiers" everywhere. Gulf countries such as Saudi Arabia, the United Arab Emirates and Kuwait commit to Egypt120USD aid investment, including deposits in the Egyptian Central Bank60billion US dollars to expand foreign exchange reserves. World Bank provides Egypt20USD loan, provided by China Development Bank to the Central Bank of Egypt10Billion dollar loan. However, these aids and loans are far from filling the huge gap in foreign reserves.
“When the house leaks, it rains all night long.” Since last year, Egypt’s major sources of foreign exchange earnings have suffered heavy losses. The plunge in oil prices has not only reduced Egypt's foreign exchange earnings, but also made Saudi Arabia and other "big donors" stretched and become more demanding. No one knows how much aid promised by Gulf countries has been delivered. The global economic slowdown has also reduced the Suez Canal's revenue. Sisi's "achievement project"-the Second Suez Canal was not launched at the right time, and the expected benefits were wiped out. At the end of last year, a Russian passenger plane suffered a terrorist attack and crashed in Egypt's Sinai Province, causing a fatal blow to Egypt's tourism industry.
Enter201611400_114431:9. The Egyptian Central Bank is in a dilemma. If it continues to maintain the Egyptian pound exchange rate, the foreign exchange bank will dry up. If the Egyptian pound is allowed to depreciate, it will cause inflation to worsen, affect the already declining people's livelihood, and is likely to trigger social unrest and endanger the stability of the regime.
Under domestic and foreign pressure, Egypt was forced to make a decisive decision and abandon the dollar peg policy. In fact, since last year11In August, Tariq Amir, the new governor of the Egyptian Central Bank, began to adopt foreign exchange reform measures after taking office, increasing revenue and reducing expenditure, controlling imports, relaxing restrictions on foreign currency deposits and withdrawals, and preparing for the depreciation of the Egyptian pound. In the Egyptian government’s new fiscal year budget, the exchange rate of the US dollar against the Egyptian pound has been adjusted to1:8.25, released a depreciation signal.
Lesson 2: Selling state-owned assets at a low price will ruin your family fortune
Although the depreciation of the Egyptian pound cannot simply be regarded as a precursor to Egypt's economic collapse, Egypt's economic prospects are still not optimistic. There is still no hope of solving the structural problems of the Egyptian economy, especially industrialization and the “de-rentalization” of the economy.
From the Nasser era to the present, the Egyptian economy can be said to be a "history of torment." From Nasser's import substitution, to Sadat's economic opening, and then to Mubarak's neoliberalism, Egypt's economic policies have changed over and over again, making mistakes after mistakes, and have never solved the above problems.
Some national industries established during the Nasser period were mostly sold off at a low price during the Mubarak period. The backbone of Egypt's economy is still "land rent" income derived from natural endowments, such as oil, tourism, the Suez Canal and remittances, rather than from productive activities. Low-end service industry accounts for of Egypt’s economy50%, the contribution rates of industry and agriculture are very low.
Egypt’s population in the past30Increased during the year1times, in order to feed its huge population, Egypt, a major agricultural country, still imports goods every year1000Ten thousand tons of wheat. The backward manufacturing industry leads to weak competitiveness of export commodities and a single structure. Oil and natural gas account for a large proportion of the total export value50%. Egypt’s annual import and export value is only equivalent to China1week’s total import and export value.
In the past30In mid-year, Egypt never achieved a w88 surplus, with exports being only half of its imports. This has left Egypt in a constant state of foreign exchange shortage, relying on loans to fill the shortfall. In order to obtain loans from international financial institutions, Mubarak was forced to accept the neoliberal reform plan, engage in privatization, and sell off state-owned assets at a low price. After several twists and turns, Egypt’s family fortune was almost wiped out.
Mubarak’s last in power1014412_1449546%. From here, it is not difficult to understand the reasons for the collapse of the Mubarak regime.
Lesson 3: “Economic populism” ignores inventory revitalization
Sisi, the soldier who followed, has no political party support behind him. He knows that if he wants to secure the presidency, he must improve the economy and people's livelihood, and his legitimacy can only be reflected in this. This makes Sisi appear to be eager for quick success and quick success, and is keen on pursuing political performance projects. He is greedy for big money and seeks foreign aid to make incremental increases, while neglecting to revitalize the stock through adjustment and reform.
Sisi’s economic line is economic populism, which bundles nationalism and economic development. The most typical one is to raise nearly 10 billion US dollars through the “crowdfunding” model,1The second Suez Canal was dug within the year. Sisi has high hopes for foreign aid and investment, trying to revitalize the economy through foreign investment.2015At the beginning of the year, Egypt held an economic development conference in Sharm el-Sheikh. At this international investment “carnival”, it was claimed that the contract value reached tens of billions of dollars, but in the end few of them actually came to fruition.
The basic logic of "Sisi Economics" is that the state leads large-scale projects to attract private capital and foreign investment. However, in Egypt, which is short of funds, such a large project does not have the conditions to be implemented. Even if it is successfully implemented, it will not have much effect on creating jobs and improving people's livelihood.
In addition, Sisi mistakenly bet his "treasure" on individual aid countries. Egypt's hope of overcoming the difficulties is pinned on foreign aid. Facts have proved that no country has the willingness and ability to save the Egyptian economy. Sisi's political wisdom is also insufficient. Authoritarianism is resurgent. He attacks from all sides in an attempt to suppress all opposition forces such as Islamists and liberal democrats. However, he has weakened the foundation of governance, caused social division and instability, and lost the necessary conditions for development.
Political stability and security are the guarantees for attracting investment
Sisi should realize that the most important factor deterring investors and tourists is not the economic environment, but their lack of confidence in Egypt’s political and security situation.
The current sharp depreciation of the Egyptian pound reflects the extremely difficult situation of the Egyptian economy. The exchange reform will lead to many negative impacts such as rising inflation and cannot fundamentally solve the problem of foreign exchange shortage, which will make the Egyptian economy more difficult in the short term.
But from another perspective, it may not be a decisive move by Egypt to scrape bones to heal wounds. The depreciation of the Egyptian pound and the implementation of a floating exchange rate system, coupled with the Egyptian Bank's close2The high-digit deposit interest rate is conducive to attracting foreign investment.
In an environment of competitive depreciation of global currencies, the depreciation of the Egyptian pound will bring many benefits such as curbing imports, expanding exports, promoting the recovery of tourism, and injecting vitality into the Egyptian economy. This policy, together with the previous policy of reducing or canceling food and energy subsidies, can be said to bring order to Egypt's economic policy. In the long run, the benefits outweigh the disadvantages.
Whether the "circuit breaker" of the Egyptian pound will be a blessing or a curse for Egypt, it remains to be seen whether the Egyptian economy will collapse. What is certain is that if Egypt wants to get rid of its economic difficulties and eliminate the root causes of social unrest, it should seek assistance from multiple parties, including the International Monetary Fund, to completely solve the problem of foreign exchange shortage and create basic conditions for economic operation.
On this basis, only by improving the political, security and business environment and vigorously developing manufacturing and small and medium-sized enterprises can we embark on the road to revitalization. Egypt has a labor force, a market, and a superior geographical location. As long as the development strategy is right, it is entirely possible to achieve economic take-off. (The author is deputy dean and professor of the w88 casino of Foreign Languages, w88 casino)
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