Egypt’s financial health triggered concern last week as the Egyptian pound further devalued and reached a record five year low. Other Arab countries have taken note: Qatar is considering another aid package to Egypt while depositing additional reserves in Egypt’s Central Bank. Basically, many outside of Egypt pray that a messy devaluation crisis may be averted. On top of that, Egypt is in the middle of negotiating the controversial International Monetary Fund package. This has been going on since the fall the Mubarak regime.
To help explain Egypt’s banking crisis, we were lucky enough to come across an excellent two-part piece posted by Haitham Essam, our new pitapal. Essam writes a blog from Egypt called the Egypt’s Economy Watchdog. You can follow Haitham on Twitter: @sansih76.
Last week, Essam wrote “Egypt’s Financial Crisis for Dummies” where he combined insight with satire to highlight how the Egyptian banking scenario is playing out. We cannot thank him enough for letting us repost his thoughts here since writing in layman’s terms is challenging enough for policy wonks… Here is the first paragraph and the link to continue with his analysis.
This blog post is targeted for those with no strong economic and financial background ..i.e the likes of the Egyptian president and his economic team.
Part 1: The story of us
By: Haitham Essam
Bear with me the long introduction, but I find it needed.
Imagine Egypt as your father, who is married to many women who in this case actually represent the different local banks! Each wive has its own kids who are in turn married and they represent the extended family. The whole family including the father work. The total value of the production is called the GDP (Gross Domestic Product / الانتاج القومي).
Your father earns his living by dedicating some of his working time for the family. So he agrees that every member of the family will pay him an amount of money (taxes) and in return for taxes, your father is going to provide for the basic services that the family need. The family is trying to portrait anything that it consumes as a basic service that needs to be provided by the father! Your father can offer advanced services for the family and even externally to other families in return for more money but your father is kind of happy with the status quo, and makes the least of efforts to generate more income..for no particular reason really. What your father earns in general exactly resembles the government revenue. Click here to continue.
Part 2: Inside Egypt’s turbulent budget
During my previous post Egypt’s financial crisis for dummies, I created an analogy to outline Egypt’s economic and financial crisis. I was supposed to start talking about the solutions in this post but I felt there is a missing step – mainly to shed some light on Egypt’s budget, a very important topic that we Egyptians are least informed of. Once, the budget mystery becomes unveiled, then it makes sense to discuss the solutions. Just like any budget, Egypt’s includes revenue as well as expenditure categories.
The force – the revenue side
Ever wondered how does the government make money? Below, is an explanation of the major sources of income for Egypt’s government. Click here to continue.