The success of the Islamist parties in power in Egypt and Tunisia hinges on their ability to deal with their deteriorating economies, but first they need consensus, writes Niveen Wahish from Kuwait
There is only one thing that everyone seems to agree on in Egypt and Tunisia nowadays: the serious deterioration in the two countries' economies. Many are blaming this on the Islamist parties that took power in the wake of the Arab Spring revolutions, though others claim it is still too early to judge.
"It is too early to tell how much difference the Islamists have made to the economies. These governments have not been in power long," said Michele Dunne, director of the Atlantic Council's Rafik Hariri Centre for the Middle East. Dunne was addressing the 19th annual conference of the Economic Research Forum (ERF) in Kuwait, which focussed on "Economic Development and the Rise of the Islamist Parties".
Not only was it too early to tell, Jillian Schwedler, associate professor of political science at the University of Massachusetts, told conference participants, but the economies of the Arab Spring countries were already in poor shape when the Islamists came to power.
"It was a difficult situation to walk into," Schwedler said, adding that various challenges had complicated their job, mainly unstable institutions, labour challenges, and differences among the Islamists themselves about the practical implementation of policies.
Nonetheless, the Islamist parties did have a share of the blame for the deterioration of the economies, many participants said, not because of the economic policies they were implementing but as a result of their inability to create consensus on political policies.
According to Dunne, the Egyptian government would not be able resolve the important issues facing it without broad political consensus.
Dunne told Al-Ahram Weekly that Egypt had very deep problems regarding security and the need to reform the police and Interior Ministry in order to restore law and order. "That is one of the things that has been hurting the Egyptian economy badly since the revolution," she said.
In addition, she pointed to the political turmoil of the political transition. "It is difficult to avoid this in a post-revolutionary situation, but it is the interaction of these things that is taking Egypt into a crisis situation."
Dunne said that it would be unfortunate for Egypt to proceed with parliamentary elections while many forces had announced a boycott and were objecting to the conditions under which the elections were being held.
"It would be better to delay slightly to try to reach some compromise and to have a broader government with more political forces in it such that they would be able to take the needed reform steps on the economy and security fronts," she said.
She pointed out that although Tunisia had got off to a better start politically and economically after the Revolution, two years later the country was in a similar situation to Egypt. Mustafa Nabil, economist and former Central Bank of Tunisia governor, said that Tunisia was much like Egypt in that it was suffering from depleting reserves, increasing government debt, a balance of payments deficit and rising inflation.
Hard currency earners such as the tourism sector had been hard hit by the security and social tensions in the country, he said, adding that the Islamist parties that had come to power in Egypt and Tunisia had failed to realise that they could not "disconnect" politics and economics.
"The Islamists do not see that it [the performance of the economy] is related to the credibility of their policies and prospects for the future," he said, adding that the Islamists had not introduced new economic policies or ideas. "They are trying not to disturb the political process [through economic measures that may turn the street against them]," he said.
Saleh Nsouli, an international economic consultant, told the Weekly that this situation was unlikely to be sustainable. Rising poverty and unemployment was worrying for any country, he said, and "Egypt cannot continue to look at growth prospects of two or three per cent. That is not a sustainable situation because the rise in unemployment and poverty is going to create problems. Egypt has to aim at a very high growth rate of between six and seven per cent instead."
Nsouli also stressed the need to achieve consensus on the country's economic reform programme. "That is the challenge of democracy," he said, adding that the world needed to see that there was fundamental political stability in the country and that there was a government that could bring about that stability.
There had to be a set of policies that signaled the seriousness of the government in reforming the economy in order to generate confidence both internally and externally, he said.
Nsouli acknowledged the non-economic elements currently affecting the economy, but nonetheless said that while the issue of handling the political transition was very important "it does not mean that in this transition one should not already start with the kind of policies that lay the foundations for the future."
He said that it may take some time for capital flows to come back and domestic investors to resume their activities, but "to the extent that the government puts in place the right policies it will send a signal that it is serious about putting the economy on the right tracks. And that is what will generate confidence among investors."
Not everything could happen at once, he said, and reforms would have to be phased in. Yet, reform could also not happen by half measures. "What is important is how to sequence the measures and how to prioritise them." This, he said, was very important in order for the private sector and foreign investors to have a clear perception of the policy path that the government was taking.
"It has to be a realistic programme that is achievable and sufficient to move forward the Egyptian economy," Nsouli said, adding that it was the role of the government to explain to the public why the programme it had chosen was going to contribute the kind of benefits that the population was looking for.
"Once the public is aware, it is not the measures that are important, because they could be difficult, but the rewards," he said.
The urgency of the economic situation in Egypt was also sounded by Hazem Beblawi, a former minister of finance, told conference participants that "Egypt is facing a fragile financial and fiscal situation."
Beblawi said that the present minister had his hands tied because of various rigid items in the budget, one of which was that 55 per cent of the budget went to pay government subsidies and interest on arrears from the previous deficit.
"This is creating an unsustainable situation in Egypt," Beblawi said. Another element was the country's balance of payments deficit, but 85 per cent of Egypt's imports could not be touched without affecting the level of production because they included essential items such as raw materials, production inputs and capital goods.
They also included pharmaceutical products, and these factors made any government's ability to manipulate imports very limited. Beblawi said that people needed to be told that the economy was facing "the equivalent of a war" that could not be fought without "sweat and sacrifice."
In the meantime, he said the best economists in the world would not be able to solve Egypt's economic problems in the absence of law and order and an ability to predict the future.
© Al Ahram Weekly 2013
