| Kippreport.com

Egypt must manage workforce’s high expectations

February 20, 2011 11:25 by Reuters

When a housekeeper came to work in Cairo on Thursday, she had a dreamy look in her eyes.

According to a calculation she had heard, if all the money looted by businessmen and government officials were recovered and divided up, Egypt’s 80 million people would each get 250,000 Egyptian pounds ($42,500). “What I could do with such money!” she sighed.

If that figure were true, it would mean an impossibly huge $3.4 trillion — some 15 times Egypt’s annual GDP — had been looted.

The idea that vast amounts can be recovered is shared by the civil servants and workers who have gone on strike at businesses and factories across the country, at a time when the government finances are at their most vulnerable.

Whoever rules Egypt, one of its biggest challenges will be to manage the expectations of newly empowered workers.

Analysts say this will put pressure on the military to quickly bring credible opposition figures into government to deliver a message many Egyptians do not want to hear — that it is in no position to meet demands for higher salaries.

The government’s finances had already been under pressure. In the financial year to June 2010, it financed almost a quarter of its 367 billion Egyptian pound budget by borrowing locally and from abroad.

That was equivalent to 8.1 percent of gross domestic product (GDP). The government before the protests had hoped to reduce this financial year’s deficit to 7.9 percent to GDP. It now says it could be as high as 8.4 percent.

“If they begin to bow to these demands in a short period, I think you’re going to have a second level of shock effects to the economy” after the earlier political protests, said John Sfakianakis, an economist with Banque Saudi Fransi.

“Wage increases would boost inflation, because that would translate into direct additional consumption by Egyptian workers. People will spend the money and drive prices up.”

The government’s revenue from taxes will drop substantially in the coming months because of a short-term collapse in tourism, worker remittances and foreign investment.

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