The political polarisation that Egypt has seen over the past year has taken its toll on the economy, if several international reports are to be believed. These reports, says Noha Moustafa, issued by institutions such as the World Bank and International Monetary Fund (IMF), emphasise that political instability comes at a price in terms of productivity losses, reduced social cohesion, financial divestment, lost wages, missed opportunities, and increased burdens on the healthcare and justice systems. In short, political instability and violence hinder the entire community's potential to grow and produce, and it is this that the many international reports have highlighted. The Arab Countries in Transition: Economic Outlook and Key Challenges Report, issued by the IMF, says that “political instability and excessive violence” are now major risks to the development of the Egyptian economy. “Political uncertainty and social unrest have kept growth low for a third straight year, impacted policy performance, and clouded the economic outlook. Financial fragilities have continued to build up with rising fiscal deficits, arrears, inflation, and debt, as well as low external buffers,” the authors say. The IMF study says that GDP growth declined in 2012/13, partly due to the political mayhem, and the unemployment rate remained above 13 per cent. Inflation doubled to 10 per cent in August 2013 during the eight months since December 2012. The budget deficit in 2012/13 is estimated at 14.1 per cent of GDP and public debt at 90 per cent of GDP. “Heightened political uncertainty and further escalation of violence would reduce confidence and increase external and budgetary pressures. Also, the rise in regional turmoil, in particular the conflict in Syria, could delay the resumption in FDI and tourism and could potentially affect Suez Canal revenues,” the report adds. The picture in other reports is not any brighter. One of the most important of these, the Global Competitiveness Report for 2013/2014 published by the World Economic Forum, ranked Egypt 118th among 148 countries, putting it three places below last year and 37 places below what it was in 2010/2011. According to the report, competitiveness takes into account the set of institutions, policies and factors that measure the level of productivity in a country, which in turn determines the level of wealth and prosperity that can be reached by the economy. Egypt ranks 148th — the last — in the categories measuring the costs of terrorism on businesses, and it is close to bottom for its budget deficit as a percentage of GDP at 146th position. The report in part attributes Egypt's low score to the political instability the country has faced since the 25 January Revolution, noting that “the deteriorating security situation and tenacious political instability are undermining the country's competitiveness and its growth potential.” Egypt has also been ranked lower than countries such as Pakistan, Yemen and Chad for “safety and security” in a report on tourism by the World Economic Forum, potentially signaling another blow to the country's already hard-hit economy. The report, the Travel and Tourism Competitiveness Index 2013, ranks Egypt at 85th place out of the 140 countries measured, dropping 10 places from a year earlier. For “safety and security,” Egypt is in 140th and last place on the list behind Yemen at 139th, Chad at 138th, and Pakistan at 137th. The safety and security category looks at “the costliness of common crime and violence as well as terrorism” and the reliability of the police and number of road traffic accidents. According to Egypt's State Information Service, tourism makes up 11.3 per cent of the country's GDP. In 2010, Egypt greeted about 14.7 million tourists who brought in some $12.5 billion in revenues, whereas in 2012 it received 11 million bringing in $10.5 billion. In January 2013, as demonstrators returned to Cairo's Tahrir Square to protest against the then Islamist president Mohamed Morsi and mourn the country's deteriorating economy, Fitch Ratings also reduced Egypt's credit rating, citing concerns about political violence and budgetary strains as the reasons behind the downgrading. The company cited the “serious divisions [that] have opened within society, contributing to sporadic outbursts of violence,” and it lowered Egypt's rating by one step to B, five below investment grade. Fitch said that the violence in the country was deflating efforts to restore political order and revive an economy that was growing at its slowest pace in two decades. The three main international ratings agencies, Standard & Poor's, Moody's and Fitch, have all slashed Egypt's rating eight times over the last three years due to the country's unstable political circumstances. However, in early November, Standard & Poor's raised Egypt's long and short-term foreign and local currency sovereign credit ratings from CCC+/C to B-/B with a stable outlook, the first time this had happened since the 25 January Revolution. But the new rating has failed to move Egypt out of the “junk” end of the scale, as it is still a full six grades below investment grade. A Standard & Poor's statement said that Egypt's “political tensions will persist, its policymaking will be short term, and structural weaknesses in its fiscal and external positions will continue.” The writer is a freelance journalist.
