The COVID-19 inflation episode: Lessons from emerging markets


The COVID-19 inflation episode: Lessons from emerging markets



In Egypt, Democracy Is the Only Avenue to Economic Stability

Content from the Brookings Doha Center is now archived. In September 2021, after 14 years of impactful partnership, Brookings and the Brookings Doha Center announced that they were ending their affiliation. The Brookings Doha Center is now the Middle East Council on Global Affairs, a separate public policy institution based in Qatar.

Egypt’s would-be revolution is causing not only a political earthquake, but an economic one as well. On Friday, the Dow Jones Industrial average was down 166 points–the biggest one-day drop in nearly half a year. Oil prices shot up more than 4%. Keith Wirtz, chief investment officer at Fifth Third Asset Management warned of a 5% to 10% selloff in the coming weeks.

Up until recently, Egypt was hailed as a success story by international financial institutions. In 2008, the World Bank’s Doing Business report named Egypt the world’s top reformer. The technocratic government of Prime Minister Ahmed Nazif oversaw annual GDP growth of 5% to 7%. By shutting out any opposition, the Egyptian regime promised political stability and delivered impressive growth. Uncertainty is the enemy of markets, and the Arab authoritarian order seemed, if nothing else, to offer a certain reliability. The past few days, that certainty has proven illusory. Egypt will not go back to what it was. In the coming weeks, the country’s economic situation will deteriorate further. On Thursday, the main index of the Egyptian stock market dropped 10.5%. Meanwhile, tourists are fleeing Egypt, and they’re not likely to come back anytime soon.

But this isn’t just about Egypt. This is about a regional architecture that is crumbling, and more rapidly than anyone had imagined. There have been unprecedented protests in Yemen and rejuvenated opposition in Jordan, another close U.S. ally and the second-largest per-capita recipient of American assistance. In other words, Tunisia and Egypt are part of a broader regional trend. If Egypt–considered to have a robust security apparatus–falls, then all bets are off elsewhere. Egyptians, after all, drew inspiration and energy from Tunisia’s “Jasmine Revolution.” Other countries will now draw inspiration from what has been the largest pro-democracy mobilization in the history of Egypt and perhaps the Arab world. It would be premature to predict a pan-Arab revolution. Revolutions, even in the best of times, are incredibly difficult to stage. But, for the first time, a region-wide movement toward democracy is within the realm of possibility.

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