Saudi Reforms Could Cause a Crisis for Egypt - Bloomberg

Saudi Reforms Could Cause a Crisis for Egypt - Bloomberg



...The knock-on effect of Crown Prince Mohammed bin Salman’s plan for economic modernization could force El-Sisi to deepen spending cuts and seek more expensive borrowing. The way out for the president is to make bolder changes, to cut the Egyptian economy loose from the restricting ties to the state, and its all-powerful military....



...by some estimates there are 2.9 million Egyptians in the kingdom.



... although regional economic integration in the Middle East has never been particularly strong, which prevents some kinds of contagion, such as currency crises, the national economies of the region are connected in other ways: Poorer states are dependent on wealthier ones for oil and gas subsidies, direct financial support, and for the employment of millions.



...the year’s budget deficit of 9.8 percent of GDP. Even without the impact of the new Saudi employment rules, the current fiscal year was going to be tougher: Analysts at HSBC Corp. predict that the government will need to raise more than $100 billion in additional budget support from international loans, bond issues or local bank loans. Financial support from regional allies like Saudi Arabia will be crucial.



The Egyptian government has been trying to reduce its dependency taking a machete to subsidies on fuel, utilities and public transport. Transportation costs are already up more than 50 percent over last year. Electricity price increases implemented in July are expected to raise the average power bill per household by more than 25 percent. Inflation has been holding steady at close to 14 percent, after steps by the central bank to devalue the pound last year.



...Already, many of the grand plans by Saudi Arabia and the U.A.E. to invest in new cities, infrastructure, and housing development in Egypt are being scaled down. Saudi development of the Red Sea coast could also mean a threat to Egyptian tourism operations. 



...He must promote the development of an independent private sector capable of creating both unemployment and revenues for the state.