Sisi's bold start on economic reforms buys Egypt some time

Egypt's new president Abdel Fattah al-Sisi has made a head start on tackling the country's economic problems, managing to introduce long-awaited subsidy reform without stirring popular unrest. Sisi's government, formed in June, announced this month it was raising prices of heavily subsidised energy products by up to 78 percent and slapped new taxes on dividends, capital gains and high-income earners.

The moves are the start of what is expected to be several years of painful austerity for Egyptians as the state aims to eliminate a crippling budget deficit estimated to reach 10 percent of GDP in the fiscal year that began on July 1. To soften the blow to ordinary Egyptians, the government also unveiled a patchwork of relief measures including free transport in army buses and more heavily subsidised food products. But while investors are impressed with Sisi's bold start, efforts needed to transform the economy and public finances have barely begun, they say.

With deeper reforms needed, rhetoric and ad hoc palliatives alone may not be enough to contain discontent in a country where public protests have removed two leaders in three years. "Further subsidy cuts will be harder to digest for the Egyptian population if they do not see at least some of these 'rewards' or if they feel these are distributed unevenly," said Coline Schep, Middle East analyst at international consultancy Control Risks. She was referring to the government's pledge to spend the savings from energy subsidy cuts on higher public sector wages, education, healthcare and pensions.

Sisi, who as army chief orchestrated the ouster of Islamist President Mohamed Morsi a year ago following mass protests, has appealed to the public for shared sacrifice as the government tries to revive an economy depleted by a slump in foreign investment and tourism since the overthrow of President Hosni Mubarak in 2011. Food and energy subsidies typically eat up a quarter of state spending and Schep said future subsidy cuts could trigger "serious social unrest if they are not introduced gradually, with warning, and with appropriate compensatory measures".