When the rating agencies rate an economy, they look at
markers, many of which are evaluated on subjective terms such as the country's
political stability, thus can be debated forever without reaching a resolution.
But if we leave these notions aside, we can look at other markers that can be
measured and assigned a number that means something. These new markers can then
be debated on more concrete terms, but because they too need to be interpreted
in a context that can lend itself to a certain degree of subjectivity, our
debate must be carried on with a sense of humility.
The most telling of the numbers in the eyes of the rating
agencies are the twin deficits, as they have come to be called. These are the
trade deficit that the nation registers with the rest of the world, and the
budgetary deficit that the government incurs. Of course, an accumulated deficit
of either kind – called foreign debt and domestic debt respectively – will also
become a concern when it goes too high due to a deficit that would have
recurred for several years in a row. And this is precisely the twin problem
that the rating agencies say is plaguing the Egyptian economy at this time. It
is also a refrain that those who write about Egypt keep repeating even when they
do not know what they are talking about.
The total debt of Egypt
is now close to 80 percent of the GDP which is high but not a killer when
compared to say, the USA
whose debt has reached 100 percent, and Japan whose debt has reached 200
percent. But that's not the full story because a debt becomes the
responsibility of future generations; a consideration that forces us to ask why
Egypt
incurred its debt in the first place, and what the demographic outlook of the
country will be like when the future will be here.
Well, the situation with the Egyptian budget is such that
two big items are causing the deficit. The first comes under the rubric of
investment; the second under the rubric of subsidies. Having gone too far with
the program of privatization, the people of Egypt have asked the government to
stop selling public companies, invest money to expand the ones remaining in its
possession, and establish new labor intensive companies that will hire some of
the unemployed, many of whom are young people.
In addition to that, the nation whose population keeps
increasing, is building new cities in the desert to ease the pressure on the
agricultural land where the old cities were built long ago and where they keep
getting larger by encroaching on arable land. Thus, investment in this area is
without a doubt of the kind that will benefit future generations. It all boils
down to the current generation doing the work and paying for it by borrowing
from the future. This is the right thing to do because it is required; it is
reasonable and it is absolutely fair.
How does that compare with the situation in America or Japan ? Well, Japan has a
population that is shrinking which means that an ever smaller number of people
will be asked to pay for a debt that keeps getting larger. As to America , while
the population may still be growing, a smaller number of people are
participating in the workforce. In addition, the pay scales keep shrinking
which means that the money borrowed by today's relatively well to do population
will be paid for by tomorrow's poorer workforce; one that also keeps shrinking.
This is required; it may even be reasonable but it is absolutely unfair.
Returning to Egypt ,
some of the money allocated to subsidies goes to reduce the price of food, and
some goes to reduce the price of energy. That which goes towards food is
infinitely small compared to that which goes towards energy. The problem the
government is addressing is being solved in a way not done anywhere in the
world. Having studied similar programs, including the Brazilian, the Indian and
America 's
own food stamp program, the Egyptians have devised their own solution. It
relies on the smart card through which the execution of the program is
monitored with a high degree of reliability thus insuring that everyone in the
program is served properly, and that no fraud is committed without leaving an
electronic trace somewhere.
When it comes to energy subsidies, we have another story
altogether. The truth is that Egypt
has vast reserves of oil and natural gas in the ground that can solve the
problem through market forces if the energy is extracted and marketed. However,
as it happens everywhere in the world, including here in Canada , a tug
of war has erupted between the foreign companies and the Egyptian government.
It is that the companies took advantage of the political situation in the
country to ask for a share of the revenues in the upcoming contracts larger
than what they get now, and what they ever got before. Negotiations ensued, and
the differences are on their way to be resolved as they always do.
In the meantime, however, the quarrel has alarmed not only
the Egyptians but also the Arab Gulf States because of their closeness to their
Egyptian “brothers and sisters” as they say, and also because the indications
are all around to the effect that Egypt may have not only vast reserves of
energy, but that it is floating on humongous pools of oil and natural gas
beneath it.