World Economy

Egyptians vote to bring unrest to an end

Mohamed Hossam | Anadolu Agency | Getty Images

Millions of Egyptians head to the polls on Monday and Tuesday against a backdrop of an economy in tatters three years after the ousting of Hosni Mubarak.

Violence ahead of the vote served as a potent reminder of the difficulties the new president will face in dealing with the banned Muslim Brotherhood. At least four people have been killed in clashes betweenprotestors and security forces since Friday.

Former field marshal Abdel Fattah El-Sisi, who oversaw the removal of Mohamed Mursi last summer, is widely tipped to win against his only challenger, former parliamentarian Hamdeen Sabahi, in an election marked by a popular desire to bring yet another volatile political transition to a close.Final results of the vote are expected within days.

Turnout in comparison to the presidential election in 2012 will be a critical gauge in forecasting approval ratings for the nascentpolitical process.

Egypt's benchmark stock index EGX30 is trading at the highest level in six years, although it shed 0.3 percent at close on Monday.Since the beginning of the year the index is up 29 percent.

"We may see some profit-taking in June, once the excitement of having a new president quietens," Angus Blair, founder of the Signet Institute, a Cairo-based think tank, explained to CNBC.

Egypt's economy depends on foreign investors, tourism and remittances from abroad. Although the interim administration had a number of respected economists, a notable rebound has yet to materialize. Economic growthcame in at just 1.4 percent in the second quarter of the fiscal year ending June, official data shows.

"I'm concerned that instead of an innovative plan to kick-start the economy and change sentiment, that there will be a piecemeal approach to tackling the problems," Blair added.

State finances have been propped up by the oil-wealthy Gulf to the tune of more than $12 billion, spearheaded by Saudi Arabia and the United Arab Emirates. They have also maintained vocal political support for the army-backed transition, and gained access to lucrativec ontracts. Last year, Egypt's budget deficit reached 14 percent of its grossdomestic product (GDP).

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"As field marshal, El-Sisi successfully negotiated and agreed upon substantial economic support from Gulf countries as a requisite to his candidacy," Ahmed Ozalp, managing director at Cairo-based Akanar Partners, pointed out.

This buffer could in turn be used to tackle key structural reforms in the economy, Ozalp argued.

"We would caution about being too optimistic" Capital Economics said in a research note on Thursday. "If Egypt is to enjoy a sustained period of strong economic growth, the new president will need to make some deeply unpopular reforms".

In an indications of measure to come, Egypt's finance ministry on Monday said the new budget proposal will move forward with slashing petroleum product subsidies in the next fiscal year.

Meanwhile, the Central Bank of Egypt (CBE) will be holding its monthly monetary policy committee meeting on Thursday. Analysts surveyed by CNBC remain divided about whether there will be a change in interest rates. At its last meeting the committee acknowledged downside risks emanating from "softening growth in emerging markets" among other factors.

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