People travel on pleasure boats on the River Nile during Eid al-Adha or Festival of Sacrifice, in Cairo, Egypt August 23, 2018. REUTERS/Mohamed Abd El Ghany Image Credit: REUTERS

A few days in Cairo are enough for one to come to a quick conclusion about the situation in Egypt. Five years have elapsed since President Abdul Fattah Al Sissi assumed power, following a popular uprising that ousted Muslim Brotherhood. Since the protests of early 2011 that toppled the Hosni Mubarak regime after three decades in power, Egypt saw no stability, until Al Sissi came to power. Observers in and outside Egypt are cautious of the prospects for the biggest country in the region. Though Al Sissi was re-elected in March, opposition figures think a painful economic reform programme may sour public sentiment.

In Egypt, you can’t see any indication of dissatisfaction with Al Sissi’s rule, and some negative criticism appears in the western media and some outlets affiliated with the Brotherhood or its supporters. Yet, the chatter in Cairo cafes and other venues often refers to the tough economic measures. The near-30 per cent inflation, along with the squeeze on public sector wages and the slashing of subsidies worry the middle class. People with higher earnings and low income taxes (if they can’t evade it altogether) also complain. But that’s normal in Egypt, where the parallel economy used to be bigger than the official one.

Egypt’s economy is improving, especially since the International Monetary Fund-sponsored reform programme started two years ago. Major rating agencies and global institutions are upgrading Egypt’s credit outlook. Prudent fiscal policy is keeping the deficit and other indicators in check. Of course, the tough price paid by the population is worth it — from a conventional economic point of view. But it seems the government is not very successful in relaying the message to the people, who only feel the pain and don’t get the point of the reform. Though economic growth is good (above 4 per cent now and expected to go over 6 per cent in a couple of years), financing government debt eats close to half of the growth. If the economy keeps expanding and investments in energy sector ($10 billion or Dh36.78 billion a year) bears fruit (increasing discoveries and production of oil and gas) it can leave the government with a possible surplus — for the first time in two decades.

Any government squeeze worries people and the reaction is understandable. One of the by-products of the reform programme is the ultimate goal of bringing the parallel economy into the mainstream. Since the black economy started burgeoning in the 1970s, no government in almost half a century has managed to control it. Now people are feeling the pinch. But despite the complaints, savings are on the rise, which may explain why reform can be sustained until it achieves its goals. Actually, one of the factors rating agencies relied on in their credit upgrade of Egypt is that local banks have sufficient funds to guarantee debt financing.

If the government managed to steer the programme to the turn of the decade, Egypt will be different by 2021. By then, credit rating could be upgraded to desired investment level (it’s at B3 now) while inflation and unemployment will have been slashed to single digit. For that, political stability is important. Public demand has prompted the government to do a rethink on the property tax law. This could have been done from the beginning itself by taxing those housing units that are used as investments, and not the ones that are used purely for residential purposes. Tax could also have been imposed on housing units that have come up on land bought and kept to benefit from the real estate bubble. That would have been more popular with the public and even more rewarding to the state coffers.

Also, economic reforms need to be followed up with a drastic makeover in government institutions, especially the bureaucracy.

Dr Ahmad Mustafa is an Abu Dhabi-based journalist.