By Ibrahim Nafie In June 1967, the Egyptian people quickly recovered from the shock of defeat in a war that ended almost as soon as it began. They straightaway rallied their enormous energies to try and eliminate the effects of the Israeli aggression and liberate the occupied territories. The Egyptian economy, too, had a major role to play in gearing up for the next round of battle -- an onerous task, given the loss of income from the Suez Canal, from the petroleum and mineral resources of the Sinai and from a "large" part of the country's tourism portfolio. Yet, the Egyptian people were willing to make untold sacrifices in order to efface the shame of defeat. They submitted without murmur to harsh austerity measures as long as they knew that their purpose was to prepare to engage the Israeli enemy in another war to regain our usurped rights. Egypt's economic architects at the time instituted a range of firm and effective policies to finance the forthcoming war effort. A dramatic tax hike brought tax revenues up to LE832.2 million in 1973 (approximately US$1917 million at the exchange rate of the time: LE 1 = US$ 2.3) from LE 692.2 million in 1969/70 (approximately US$1592 million). In addition, greater amounts of currency were issued in order to finance increased expenditure, the import of luxury goods was banned and private consumer spending was curbed in order to concentrate resources where they were needed. It was also necessary, however, to increase our dependence on foreign financing. In spite of the heroic sacrifices of the Egyptian people, domestic savings would not be sufficient to cover the costs of war. The government therefore increased the level of foreign assistance in the period preceding the October War to 5.6 per cent of GNP. Nations friendly to Egypt, notably the former USSR, came forward with significant levels of aid in the form of loans and civil and military technological assistance that proved invaluable. Our fellow Arab countries were also eager to be generous. Saudi Arabia, Kuwait and Libya together gave Egypt approximately 135 million sterling annually between June 1967 and October 1973. Moreover, as much of this assistance came in the form of soft loans and was invested in vital economic spheres, our debt burden was greatly alleviated. Thus, at the end of the October War, Egypt's civil debt was only US$2.7 billion and its military debt only US$2 billion, paltry figures compared to the enormous cost of the hostilities themselves. While this foreign assistance was most welcome, Egyptians still had to rely first and foremost on themselves. Financing the war effort absorbed between a fifth and a fourth of GNP in the period prior to 1973. It was a price the Egyptian people were willing to pay even though the increase defence allocations, which had stood at 5.5 per cent of the GNP in the early sixties, came at the expense of economic development. Nevertheless, it is noteworthy that although the annual growth in GNP fell from an average of 6.3 per cent during the first half of the sixties to less than half that figure during the inter-war period, the growth that did take place was concentrated in major primary industries such as the Iron and Steel Works in Helwan. Finally, in order to secure stability on the domestic front, the government introduced a strict food subsidy system and a compulsory pricing policy on essential commodities, in order to ensure the distribution of staple foodstuffs to the needy. The heroic feats of the Egyptian forces in the October War have won worldwide admiration. With this victory, the country's economy moved up a gear. Although still encumbered with the consequences of war and the results of earlier economic policies, it was nevertheless poised to effect those transformations necessary to be able to merge with the global economy. This was to prove an uphill task. Enormous expenditure was required for the reconstruction of the cities of the canal that had been pummeled by the Israeli aggression. The infrastructure of our large cities had seen considerable attrition as the result of the influx of refugees from the canal zone and the rise in rural to urban migration. We had to replace the weapons lost during the war. And meanwhile, the Egyptian economy also had to sustain its ordinary functions and pursue the eternal objective of raising standards of living. The combination of extraordinary and ordinary burdens was unsustainable. This led the government, once again, to increase the country's dependency on foreign assistance, which reached 12.3 per cent of GNP in the period 1973-1978, while our national deficit skyrocketed from $2.7 billion in 1973 to $8.1 billion in 1977 and a colossal $16.5 billion in 1980. The demobilisation of our armed forces following the war also placed an additional burden on the economy, due to the rise in unemployment that followed. To counter this, the government opened the doors to Egyptian labourers who began to emigrate to Libya and the countries of the Gulf. Although this solution was not ideal, the national economy was simply unable to absorb the volume of labour that had suddenly become available. The post-war period also brought spiraling inflation. Whereas at the beginning of the seventies inflation stood at approximately 4 per cent, it rose to a rate of approximately 13.1 per cent annually during the period from 1975 to 1980. To a large measure, this was due to the lifting of the compulsory pricing policies. At the same time, the price of imports skyrocketed when valued against the Egyptian pound due to the drop in the value of the Egyptian pound against the dollar. The value of the currency was further undermined by the black market in forex that emerged during this period. On the plus side were the fact that the reopening of the Suez Canal restored a significant source of revenue. The tourist industry experienced rapid expansion, while intensified petroleum exploration and extraction in the Suez Gulf also promised to boost the national income. Nevertheless, rapid growth in the commercial and financial sectors in the late 1970s was accompanied by near-stagnation in the vital sectors of industry and agriculture. This, combined with rapid inflation and the continued deterioration of urban infrastructure, impeded progress in raising the national standard of living. In short, the Egyptian economy was not in great shape in the latter half of the seventies. However, the situation was in many ways normal for a country that had just emerged from the strains of a prolonged period of preparation for war. Moreover, it was a situation that was destined to change dramatically over the course of the following decade, as Egypt's new political leadership came to terms with the importance of reform. It was the reforms they instituted which were able to rectify the imbalances in the economy, thus raising it to a level commensurate with Egypt's regional and international status.
