Can $12 Billion Buy Egypt a New Economy?

The problem is that any economic measures which inflict substantial pain require a high degree of social consensus, at least in non-autocratic states. The Islamist government quickly frittered away its store of post-revolutionary goodwill, so that when Morsy tried to comply with IMF demands by imposing a sales tax on consumer goods, furious demonstrations forced him to retreat just eight hours after the policy was announced. Egypt is now running an utterly unsustainable budget deficit equal to about 15 percent of gross domestic product. The el-Beblawi government will have to increase revenues and cut costs. That means raising taxes on the rich -- Egypt's rates top out at 25 percent -- and actually collecting tax revenue, which will be difficult enough. But the much harder part will be reducing subsidies on food and fuel, which now consume $20 billion a year, or one quarter of its budget. And the new interim government almost by definition cannot claim the popular mandate it would need to make those decisions stick.