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Egypt in Economic Death Spiral?

The economic news in Egypt is getting worse. The country’s foreign currency reserves fell by 10 percent last month, according to the BBC:

The [Egyptian Central Bank] said reserves fell by $1.4bn during the month from $15bn to $13.6bn amid continued political unrest and violent street protests. […]

The central bank gave no reason for the fall in a statement published by the state news agency Mena.

But economists say the continued political instability in Egypt has crippled the tourism sector—an important earner of foreign currency—and discouraged foreign investment.

This is obviously bad news, but the question now is exactly how bad. Under the worst case scenario, political instability means less tourism and investment, which means lower incomes and fewer government resources for welfare and subsidies, which means greater social unrest, which means even less tourism and investment. That’s a death spiral: repeat until dead.

It’s not clear how much foreign aid is available, how much time it will buy, or whether this or any Egyptian government is capable of using that time effectively to reverse the death spiral before things fall apart.

These are the questions to ask about Egypt today, as well as the question of which forces will contend for power as conditions in the country deteriorate.

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