Egypt is desperate for change, but whatever changes are made will bring pain to someone. Fired by the revolution that many saw as the cure for the political, social, and economic ills, many are not prepared to suffer any more.

When Mohammed Morsi ran for president in June 2012, he pledged that in one hundred days he would solve the problems of the provision of bread, a stable energy supply, safe streets, trash clearance and better traffic flows. His impossible pledge and his membership in the Muslim Brotherhood helped to convince 48.3 percent of the electorate to choose his opponent, Ahmed Shafiq, the last prime minister from the Mubarak administration.

At the end of the hundred days, nothing had changed and the criticism grew. He will have to do far better with broader areas of the economy than he did after his first hundred days—and quickly.

The constitutional referendum that was held in December revealed the weakness of the Muslim Brotherhood’s hold. The new constitution passed with the approval of only 20 percent of the potential electorate, while eighty percent either voted against it or didn’t vote. Those who did support the new law come mainly from the poorest regions of the country and are at the lowest income level.

Politics had been given a priority for the first six months of the Morsi administration. Once the referendum was over, attention turned to a practical matter: the economy.

The collapsing Egyptian pound demands immediate action. It had fallen by six percent by the end of December, a level against the U.S. dollar not seen since 2004. In spite of an emergency loan from Qatar, it continues to weaken with no bottom in sight.

Egypt is being hit by three blows that are depressing the value of the currency. The demonstrations in Tahrir Square and the increasing crime directed against tourists is driving down the number of visitors. Tourism in 2010 earned 12.5 billion dollars for the economy, but that has fallen to 8.8 billion with no upturn in sight. Tourism accounted for 6.7 percent of the GDP and at its peak made up 26 percent of foreign exchange.

In 2009, the transfer of funds from Egyptians abroad amounted to eight billion dollars, nearly six percent of the GDP and one third of the value of exports. But economic troubles in North America and Europe as well as the revolution in Libya (where 1.5 million Egyptians were employed before fleeing and expanding the unemployment rolls at home) have combined to decrease remittances. The funds are needed to offset the trade imbalance, a chronic problem. Egypt imports double what it exports; and exports have been impacted by the slowing global economy and the labor disorders that have accompanied the political protests.

The Egyptian Central Bank has opted to support the managed peg that has kept the Egyptian pound fixed against the U.S. dollar. Half the foreign reserves have been consumed in what is proving to be a futile effort.

At the end of December, capital outflows forced the government to impose restrictions on the amount of money that could be remove from the country. The exchange rate was breaking and the reserves had fallen to fifteen billion dollars or three months of what will be needed to finance imports. The country imports half of its food, which makes the maintenance of reserves vital.

The Central Bank could allow the pound to fall to conserve dwindling foreign reserves. That, however, would raise the cost of imports and add to the 4.1 percent inflation rate.

More government subsidies would be required to keep food prices from rising. That would expand the budget deficit beyond the present ten percent level and push the national debt above the current 76 percent of the GDP.

Subsidies account for thirty percent of the budget and are a focus of the IMF. A 4.8 billion dollar IMF loan depends upon Egypt reducing the subsidies and raising taxes.

A credit rating downgrade from “B” to “B minus” in December by Standard and Poor’s brought Egypt’s standing to the same level as Greece. The lowered credit rating makes the IMF loan vital. Only if Egypt can acquire the loan that was delayed in December will it be possible for loans from the European Union or the African Development Bank to be arranged.

After a year of negotiation with the IMF, the Morsi government had agreed to cut subsidies for butane, gasoline and food. These subsidies are viewed by the IMF as encouraging wasteful consumption, and are of greater value to upper-income Egyptians, who can afford higher prices. When the time came to act, the government retrenched on its program to cut the subsidies and, to avoid more disorders, raised taxes on capital gains, incomes and some consumer items.

The government has been forced to borrow to carry through what is hoped will be a temporary rough period. Qatar has come to the rescue by doubling its pledge to a four billion dollar loan as well as eighteen billion in future investments. Qatar National bank has bought a 77 percent interest in the French Societe Generale Egyptian unit for 1.97 billion dollars. This will give Qatar a foothold in the Egyptian financial market to support future investments.

Critics of the Morsi Administration are asking why the Emir of Qatar has such an interest in Egypt. One explanation is that he is a supporter of the Muslim Brotherhood, and employs it to serve his personal interests. Another story circulating suggests that one of the investments will be the acquisition of the Suez Canal on a ninety-nine year lease.

Saudi Arabia has no grand ambitions for Morsi’s Egypt beyond buying time while they watch and wait. In May, the Saudis did provide five hundred million dollars and made an eight-year deposit in the Egyptian Central Bank for a billion dollars. They will also provide 250 million dollars of butane gas. Yet these are token gestures because the Saudis distrust the Muslim Brotherhood. They will need to be sure that the Brotherhood does not threaten the stability of the Kingdom before they do more.

Even the Egyptian armed forces loaned the government a billion dollars, demonstrating that they are functioning as a separate state. It is one of the critical flaws in Egypt’s current structure that plagues the tottering economy. No one knows exactly how much of the economy is owned by the military, but it is estimated to be in the range of 30 percent and encompasses a broad spectrum of economic activity. Key positions in the enterprises go to retired officers, and any government determined to impose economic reforms will have to deal with entrenched military interests.

Articles 193 through 197 of the new constitution assure the military of its continued independence from the civilian government. The defense minister is to be chosen by the officers from their ranks. The budget is to be prepared by a National Defense Council outside of parliamentary control.

The involvement of the government and the military in the economy is a legacy from the era of Gamal Nasser, who adopted the Soviet economic model with emphasis upon heavy industry, imposing a grossly inefficient structure on Egypt. In 2004, Mubarak began to reform the over-regulated, high-cost economy. Growth increased from 4.1 percent in 2004 to 7.2 percent in 2008. Even during the global economic meltdown in 2010, the GDP continued to grow by 5 percent.

This was matched over the same period by an increase in foreign reserves from 14 billion to 36 billion dollars. Egypt was enjoying the benefits of foreign direct investments that were being augmented by the privatization of state-owned enterprises that amounted to 9.4 billion dollars.

All of it came to an end when the mobs took to the streets in January 2011. By the end of the year, unemployment had risen from 8.9 to 12.4 percent, and GDP growth shrank from 5 to 0.5 percent. The foreign reserves accumulated over seven years were halved with the flight of capital and domestic savings in search of safety abroad.

Morsi has inherited a stagnating economy and an impatient population. The revolution has come to mean for many “Bread, Freedom and Justice.” Workers are demanding the right to form independent labor unions and to have businesses restricted in their right to dismiss employees at will.

The workers are turning against his administration, which they consider to be more oppressive than Mubarak. They are seeing wealth transferred from the crony capitalists of former rule to a Muslim Brotherhood cronyism that excludes anyone outside the movement.

The economy is being stifled by a lack of investment funds. Government borrowing at 13.54 percent is freezing out private businesses, especially the smaller enterprises that account for the bulk of jobs.

Also choking the economy is an array of regulations, which make even simple matters, such as having a telephone service connected, into a major effort. The process can cost several times the annual income of the average citizen and involve a dozen or more steps.

The corruption and excessive regulation keeps 40 percent of the economy underground. It will emerge only when the burden of demanding bureaucrats is lifted. This will require a major overhaul of the political and economic structure. Egyptian society is being torn between those impatient to have changes come quickly and the bureaucracy, the military and the established private sector seeking to maintain the status quo.

The lack of domestic savings means that foreign capital is desperately needed. While Cairo seeks to lure outside investors, populists are seeking to reverse the sale of industries by the previous administration, which was accused of selling off state enterprises below the real market value. It is giving potential investors another reason to doubt Egypt as a safe location. Foreign direct investment has fallen by 84 percent from its peak in 2007.

The forces that brought clashing mobs into the streets are still there. They are facing each other in a variety of ways and often beyond public view. The new movements do not have the time to mature into groups willing to negotiate. They are more inclined to turn any disagreement into street action. With so many grievances going unanswered by the administration, it’s a very safe bet that the mobs will be in the streets for a long time to come.

Felix Imonti is the retired director of a private equity firm.

Image: Wikimedia Commons/David P. CC BY-SA 2.0.