When hunger came to Egypt

The question is how long Egyptians can go hungry before the Morsi regime loses its capacity to govern

By David P Goldman

Egyptians are getting hungry. The fall of the Egyptian pound to just 60% of its 2012 exchange rate against the dollar has priced everything but bread out of the reach of the poorer half of the population, and the bread supply is now at risk.

The news late last week that Libya and Qatar may lend US$5 billion to Egypt was overshadowed by reports that Cairo owes $5 billion to the oil companies that produce oil and gas on its territory. Half of the amount is overdue, and oil companies reportedly expect to wait years for payment. Egypt's arrears on trade credits from suppliers of oil, wheat, and other essential items probably exceed its $8.8 billion cash reserves, leaving the country flat broke. 

With a trade deficit running at $32 billion, the Libyan and Qatari money covers just a couple of months; stiffing the oil companies might have covered the past couple of months. If the Egyptian government finally comes to terms with the International Monetary Fund for a $4.8 billion loan, that will cover another few weeks.

Egypt's Exports, Imports and Trade Balance 

Egypt's finances have been in free fall since the mid-2000s, when prices for food and other essential imports soared while export earnings for cotton and other products stagnated. At $60 billion, the country's trade deficit is a seventh of its gross domestic product. The 40% fall in the exchange rate of the Egyptian pound from 6 to the dollar late last year to 8.25 on the black market last week will raise the cost of imports even further. 

The half of Egyptians that lives on $2 a day no longer eats beans, let alone milk products. 

The price of fava beans, the country's second-most important food staple, has already risen by 40% this year, to 5,000 Egyptian pounds (US$728) per ton from $3,000 Egyptian pounds in January. Imports of proteins have collapsed, according to theEgyptian Gazette:

''As for frozen food imports, namely meat, fish and chicken products, they fell by 25 per cent during the first three months of the year, compared to the same period a year before due to the surge in the dollar," said Alaa Radwan, a member in the Food Stuff Industries at the FECC. Radwan, who is also head of the Association of the Meat, Fish and Chickens Importers, explained that banks had suspended offering importers with letters of credit, demanding them to seek dollars from the parallel market, which caused frozen food prices to increase by 25 per cent to 39 per cent.

The price of imported milk products, which account for 60% to 65% of consumption, has risen by 60% since January, the Gazette reported. 

The only basic foodstuffs still available to poor Egyptians are state-subsidized bread, sugar and oil. That may change drastically during the next several months.

The Financial Times April 11 reported that the Egyptian government will be short 3 to 4 million tons of wheat imports this year. By overestimating the local wheat crop by more than a third, the newspaper quotes an American agricultural attache, Cairo has slashed orders for imports:

In a report written by the US agricultural attache in Cairo, the US warned that the Egyptian government was overestimating production for the current crop year by as much as a third or more. Egypt has predicted it will harvest 9.5m tonnes of wheat this year. The US report put its own estimates 10 per cent lower, at 8.7m tonnes, and warned that several "knowledgeable interlocutors" put the forecast even lower, at 6m-7m tonnes. "The government is setting import procurement and wheat stock policies based on significant local crop production overestimations," the US agricultural attache wrote.

Egypt's farmers are unlikely to produce that much wheat because they lack diesel fuel to operate tractors and to bring their harvest to market. The government has just three months' worth of wheat in stockpile and is likely to run short of the country's main foodstuff by earlier summer. 

"Egypt has not received a crude oil cargo from open market suppliers since January and, with money tight, the state grain buyer has not purchased wheat since February," Reuters had reported March 28, adding, "International trading houses Petraco and Arcadia were due to deliver crude after winning a tender, but the state importer, Egyptian General Petroleum Corp (EGPC) has cancelled both deliveries, several traders said. As a result, refineries are running well below capacity." 

The Morsi government's behavior is hard to fathom. It may be that the Muslim Brotherhood government spends so much effort getting through the day that it has difficulty focusing on the three-month horizon. It may also be that it is trying to show a much lower financing requirement to the International Monetary Fund in order to reduce the stringency of IMF conditions. 

The IMF requires a cut in the government's deficit, now at 14% of GDP, before issuing a loan, and the Morsi government is reluctant to cut the energy subsidies that consume a fifth of government spending. It may simply be that Morsi's lieutenants, like the late president Nasser's generals during the 1967 war with Israel, are afraid to deliver bad news. 

Events in any case have moved beyond the IMF's requirements. Currency devaluation has already imposed de facto rationing of essential commodities, and the shortage of diesel, propane gas cylinders, and other essential items has imposed energy rationing. The question is how long Egyptians can go hungry before the Morsi regime loses its capacity to govern. 

The only practical assistance the US has provided to the Morsi government took the form of a shipment of 140,000 teargas canisters. This arrived at the Abadeya Port in Suez, the Egypt Independent reported April 8. As matters stand, Morsi will need them. Perhaps Washington could follow up by donating coffins.