As Egypt enters its third year since a popular revolution toppled the regime of former Egyptian leader, Hosni Mubarak, one of the nation’s main concerns is still the state of the economy. The Egyptian economy experienced several violent and unsettling political shocks and today citizens are unsure of the current government’s ability to improve their local economy.

As Egypt enters its third year since a popular revolution toppled the regime of former Egyptian leader, Hosni Mubarak, one of the nation’s main concerns is still the state of the economy. The Egyptian economy experienced several violent and unsettling political shocks and today citizens are unsure of the current government’s ability to improve their local economy.

The furore over current Egyptian President Mohammed Morsi’s constitutional declarations last December, which caused more protests, has had a further negative impact on the country’s economy. The political instability saw the Egyptian currency fall again, compared to foreign currencies, and the depletion of foreign currency reserves at the country’s central bank. Some were saying that Egypt would run off foreign currency – necessary for the purchase of imports and to service debts – within months. Others speculated that Egypt would soon be bankrupt.

A former Egyptian finance minister, Samir Radwan, dismissed talk of bankruptcy, saying that Egypt had never been bankrupt at any time in its long history, outside of one instance in the 19th century. It was true that foreign currency reserves had fallen to US$15 billion, he said, but Egypt was still able to pay its debts back, in two upcoming instalments – one in January and another in June. The real danger, Radwan said, was the ongoing depletion of foreign currency reserves.

A local professor of management, Sharif Delawar of the Sadat Academy for Management Sciences in Cairo, agreed with the former finance minister. “Our debts are long term and spread over many instalments,” he explained. Delawar also put paid to rumours about the government no longer being able to pay civil servants, suggesting the state would print money rather than do that.

However not everyone agrees. Economist Hamdy al-Gamal, who is also the managing editor of the weekly financial magazine put out by the authoritative Al Ahram, the Middle East’s largest daily newspaper, is one of these. Al-Gamal says Egypt is already acting as though it is bankrupt.

“We have already started to see the beginnings of a new revolution, the revolution of the hungry,” he states. “We are witnessing incidents where supermarkets are being broken into and post offices and retailers are being attacked as people search for food and money.”

Al-Gamal also points out that Egypt’s external debt has been rising due political disruptions after the revolution and the current government’s inability to manage the economy. Servicing that debt used to cost the government around US$1.3 billion but was now costing almost US$2 billion every year. Egypt’s credit downgrade to from B to B minus – the same level as an ailing Greece – by international rating agency Standard & Poor in December had not helped either – as it made foreign debt more expensive and Egyptian interest rates more unfavourable.

The budget deficit had also worsened substantially and looked likely to get even worse, given that some of the mainstays of the Egyptian economy – such as tourism and manufacturing – had not yet recovered either.

As an urgent solution, the Egyptian government has endorsed an Islamic Bonds project. The bonds are the same kind as those issued by other governments to raise money for the national coffers; the main difference is that Islamic bonds fit in with religious rules on money lending – for example, no interest is charged. Some describe them as similar to making investment decisions based on ethical motivations.

Egypt’s bonds are designed to attract regional Islamic banks that would buy them and thereby pump more money into the Egyptian economy.  The Egyptian government guarantees to pay the bonds back at a certain time.

However as Hisham Ibrahim, a professor of economics at the University of Cairo points out, the Islamic bonds scheme – which he notes doesn’t differ much from a similar schemes under Mubarak’s government – is misguided.

“The Muslim Brothers have made several statements about how this plan will bring Egypt billions of dollars,” Ibrahim says. “But these statements are neither accurate nor logical because bonds schemes are only useful in vibrant economies. Without a productive environment the current crisis cannot be eased by this Islamic bonds project.”

Al-Gamal agrees with Ibrahim, saying that Islamic bonds involve greater risks and actually open the door to the sale of some of Egypt’s most important assets.

Radwan explains that the Islamic bonds may well be guaranteed by assets like the Suez Canal or the Egyptian railways or any other vital national facility. Should the government fail to satisfy the bond holders when the time comes, their assets may be forfeit.

“And what would happen if we issued bonds against the Suez Canal, and Israeli investors purchased them?” he asks.

Currently the Egyptian government appears to be holding out the most hope for a solution, courtesy of the International Monetary Fund or IMF.  Negotiations over a US$4.8 billion dollar loan have been going on for several months.

Delawar believes that Egypt will get that credit – but only after the election of the new parliament. This is to ensure that any new government agrees to the conditions of the loan. He also thinks that once the deal is done, the IMF’s agreement will see Egyptian finances more trusted and will open the door for other international aid and funding.

Radwan agrees because as he explains, the IMF has two conditions for the loan: the willingness of the Egyptian government to introduce an austerity program to reduce the budget deficit and that that austerity program should be acceptable to Egyptian voters. However Radwan also thinks that any such program will only be concluded, finally, after the elections – just in case the government loses voter support over it.