President in name
Egypt’s Islamists will find victory bittersweet. The Muslim Brotherhood’s Mohamed Mursi is the Arab nation’s first freely elected president. But the role comes with limited power and may be short-lived. The long-repressed movement will struggle to deliver on its promise to jumpstart the ailing economy.
The economic challenge is daunting. GDP contracted by 1.4 percent in the first quarter after seasonal adjustments, according to Capital Economics. Foreign reserves are now worth just three months of imports and the government faces a double-digit fiscal deficit amid rising financing costs.
Private investment is a key pillar of the Brotherhood’s economic plan. Yet the election of a president won’t be enough to convince investors to return. The Brotherhood made its promises at a time it had already won the largest share of parliament which has now been dissolved. That likely sets back the army’s handover of legislative power by up to five months. The polarized country must first agree on a constitution and may then require fresh elections.
Nor can the Brotherhood rely on a big aid deal. The International Monetary Fund has grown comfortable with the Islamist movement. But the IMF requires fiscal commitments which Egypt’s new president doesn’t have the power to make. It isn’t clear how much say Morsi will have over the spending plan that began in June – which the Brotherhood says is full of “extravagant state spending”.
The Brotherhood’s hopes of a quick economic turnaround look optimistic. But it could be worse. The value of the Egyptian pound has held for longer than expected. The state could finance itself for another five months with the help of a $1 billion deposit due from Saudi Arabia, a likely revaluation of gold reserves and foreign currency inflows from two state-backed M&A transactions.
Good or bad, the military has put a strong check on the Brotherhood, even if the acceptance of Morsi’s victory shows a degree willingness to work with the Islamists. Even if that partnership is eventually fruitful, it will take time to establish middle ground. Egypt’s new president will find it hard to live up to expectations.