Egypt upheaval mars hopes of end to economic woes

The Gulf allies have pledged billions of dollars in aid, but analysts say this simply buys time for the nation

Egypt's shattered economy was boosted this week by Gulf allies pledging billions of dollars in aid, but analysts say this simply buys time as political turmoil deepens its economic malaise.

The millions of ordinary Egyptians angered by record high unemployment, soaring inflation and chronic fuel shortages who took to the streets two weeks ago demanding Mohamed Morsi's resignation blamed him for letting the economy nosedive.

Fuel supplies have returned, after panic buying before the military coup on July 3, and three Gulf monarchies relieved at the toppling of Egypt's Islamist president have pledged $12 billion in assistance.

But dire security problems and political instability mean a return of the tourists and foreign investment that Egypt so desperately needs are a distant prospect.

And progress remains stalled on negotiations with the International Monetary Fund on a $4.8-billion loan.

"Even if they do agree on the loan, I just don't believe that we're going to see a flood of investment," said financial analyst Andrew Cunningham.

"The country has been in turmoil since 2011, there's just been a military coup and they're shooting people on the streets. This is hardly an attractive prospect."

Gulf pledges of financial assistance are a lifeline for the new administration.

Foreign reserves have fallen by almost 60 per cent since the revolution that toppled Hosni Mubarak in February 2011, to $14.9 billion in June -- the equivalent of just three months of imports.

Kuwait offered $4 billion in cash, loans and fuel, with Saudi Arabia contributing $5 billion and the United Arab Emirates another $3 billion.

But Cunningham warned that, while welcome, the cash injection was not a long-term solution.

"We're still talking plasters and bandages. The challenges are enormous and they are structural. Egypt's economy has been badly managed for decades, and it didn't improve under Morsi."

Illustrating the severity of the problem, the latest data from Egypt's official statistics agency shows that unemployment jumped after Mubarak's ouster and then rose steadily over the next two years to reach a record 13.2% in March.

Problems Egypt's new rulers will have to confront if they are to reverse the inexorable decline include corruption, poor education, a bloated public sector, low productivity and unsustainable food and fuel subsidies.