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From hope to despair: Egypt slides into economic uncertainty, again

By John Defterios, CNN
updated 1:01 PM EDT, Mon July 8, 2013
  • Egypt's budget deficit and unemployment continue to rise as growth slows.
  • Egypt grew above 5% before the revolution, the economy barely growing now
  • Foreign reserves dropped just over a billion dollars in June to $14.92 billion

Editor's note: CNN's John Defterios is CNN's Emerging Markets Editor and anchor of Global Exchange. Watch the Sunday to Thursday 1900 UAE and follow him on Twitter.

(CNN) -- The euphoria that greeted the transition to military rule in Egypt and prompted a 12% rally in three days last week has quickly faded. Five days into the military's rule in the country's second revolution and the transition is looking as messy as the first time around.

Protests in support of Mohamed Morsy, and subsequent killings and injuries that have taken place, will make it even more challenging to stabilize the most populous country in this region.

Read more: A week of upheaval in Egyptian politics

Now the difficult financial work begins. The governor of Egypt's central bank, Hisham Ramez, came to Abu Dhabi Sunday for private meetings but he tried to fly under the radar.

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Details were in short supply, but officials here say a high level UAE delegation will be going to Cairo to continue talks. The subject, no doubt, must be short term financing.

According to the central bank, foreign reserves dropped just over a billion dollars in June, to $14.92 billion. That is a three month supply of capital, with the bulk coming from wealthier neighbors, notably Qatar, Saudi Arabia, Turkey and Libya.

The UAE pledged $3 billion shortly after the ouster of Hosni Mubarak in 2011, but just three months ago the government said it will take more time before the money is delivered.

Egypt unrest: 5 key questions

There is a mix of political and economic factors to consider, as is often the case in the Middle East. Qatar was an early mover in support of the Muslim Brotherhood and provided $7 billion of the funding in transition.

Saudi Arabia and the UAE were among the first nations to come out with statements of support after last week's power play by the military and they are eager to see the situation stabilize.

Talks with the International Monetary Fund have hit roadblock after roadblock since Mubarak was toppled from power.

President Morsy held a series of meetings in Cairo and Washington, but by the close of 2012 he did not have the political support from the opposition to try and drive through cuts in fuel and food subsidies that the IMF wanted to qualify for a $4.8 billion loan.

Egypt's Adly Mansour: Interim president, veteran judge, mystery man

In the meantime, the budget deficit and unemployment continue to rise. Both are running about 13% and continue to rise as growth slows. Egypt was growing above 5% before the revolution, but the economy is just barely growing.

The government is earmarking growth of 2% this year, but that is looking ambitious considering what is happening on the streets of Cairo and other major cities.

The January 2011 uprising was driven in part by those who felt locked out of opportunity by the Mubarak government and many complain life did not improve in the year Morsy had the reins in his hands.

CNNMoney: 9 insights for Egypt's new rulers

A quarter of the population still lives on less than $50 a month and about a quarter of the youth are without a job, according to the International Labor Organization.

After the attacks on pro-Morsy protestors in Cairo Monday, the Al Nour party, representing the more conservative Salafis, said it will pull out of talks to find an interim leader.

This will make it difficult for General Commander Abdel Fattah al-Sisi and the new technocratic interim president he appointed, Adly Mansour, to achieve a timeline to transition of six to nine months.

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