The Pros And Cons Of The IMF And Egyptian Currency Crisis

Decent Essays
Egypt’s economy spiraled downwards following the Arab Spring when investors hurried out of the economy, largely impacting the currency, foreign reserves, and investments in the country. This paper mainly focuses on the ongoing IMF and Egyptian government policies on solving the currency crisis. Firstly, the causes and the effects of this crisis will be analyzed, using data from the World Bank and the International Monetary Fund. Secondly, theoretical approaches of handling and recovering a financial crises will be reviewed and compared to the case study. Thereafter, current policy entanglements, such as the conditions of the IMF loan to Egypt will be revised to see where benefits and disadvantages can be found. The current policies followed…show more content…
However, the liberal policies of floating the currency and cutting subsidies, have not had a positive impact on the great number of people who below the poverty line. High inflation rates also highly affect consumers, which could maintain unpopularity towards the government.
The Arab Spring in 2011 brought a belief to people living in Middle-Eastern countries, such as Tunisia and Egypt, that they could overthrow an autocratic ruler. However, viewing demonstrations and political instability from an economic perspective, such activities often create a rift in the confidence of the economy and a capital flight from it (Ramzy 2013, 123-124) (Springborg 2011, 92). If instability continues to be the case in the political habitat of a country, then it could be hit by a financial
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That is mainly due to the crisis recent happening. However, there are some academic policy papers on this topic. Ramzy’s article, “Green economy: a pathway to sustainable economic growth in Egypt”. Ramzy advocates for more reforms towards a more environmental friendly economy in Egypt (2013, 123). Secondly, Mansour’s article, “Sustainable youth community development in Egypt”, which focuses on the potential of the youth population in Egypt to the country’s economy along with the idea to promote sustainable resources in Egypt (2016, 2721). These scholars have thus aimed to find ways towards how Egypt can diversify its economy, mostly here in ecological ways, which could arguably bring in further investments into the Egyptian economy (Ramzi 2013, 124) (Mansour 2016, 2722). However, to focus more specifically on the approaches towards the currency crisis itself, the paper will now turn to the approaches of the IMF to the crisis. These approaches came as part of the conditions to the US $12 billion loan granted in portions to Egypt in November 2016 (IMF 2016). The IMF took a liberal approach in its loan conditions towards Egypt. That is, floating the exchange rate of the Egyptian pound, introduction of value-added tax, reduction of subsidies, and raising interest rates (Ibid) (Krugman 2014, 479). The monetary policy framework consists of money targeting, which refers to controlling the money
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