A year after Egypt overthrew Hosni Mubarak, the poor state of the once growing economy of the Arab world’s most populous nation poses a threat to its restive transition to democracy.

With an estimated growth rate of one to two per cent –compared with between five and seven per cent in past years – the government is looking to the International Monetary Fund and donors to fend off a possible social explosion.

“One year after the revolution, the economy is in a state of anarchy, out of control,” said Salah Goda, the director of the Economic Research Centre in Cairo.

Key earnings from tourism fell by 30 per cent, a shortfall of $4 billion, according to official statistics that some tour operators believe are rather rosy. As ratings agencies steadily degrade it, investors no longer jostle to buy into Egypt, which has a workforce sometimes cheaper than China’s and a market of 82 million people.

At the centre of the country’s economic concerns is the melting away of its central bank’s foreign currency reserves, which dropped by more than half in a year, from $36 billion in January 2011 to $16.3 billion.

Coupled with a deficit of 8.7 per cent of GDP – more than 10 per cent, according to some economists – there are doubts that Egypt can maintain its costly subsidy system.

The subsidies cover such essentials as bread, cooking oil and gas.

Removing the subsidies raises fears of a social explosion in a country where 40 per cent of the population lives on just two dollars or less a day.

Rumours of fuel shortages for several days in January led to long queues of cars at petrol stations across the country, reflecting Egyptians’ nervousness on the topic.

Reforming the system, whether under pressure from the sagging economy or international donors, could place the military-appointed caretaker Cabinet in a dangerous position.

“Changing the policy of subsidies on food, petrol or butane gas can lead to political disaster,” said Hamdi Abdelazim, an economist at the Sadat Academy for Management Sciences.

“The depreciating public finances will weigh down on the government’s ability to ask for credit from international and domestic funders,” said the economic analyst Zeinab Abdelrahman.