With demonstrators back on Tahrir Square in Cairo, Western media outlets once again are focused on the demands of urban protesters. A less tractable but more important story is: when will the Egyptian economy collapse altogether? The answer appears to be: at the very latest, when Saudi Arabia and Gulf states grow weary of paying Egypt’s bills, and probably well before then.

A May 19 report by the Middle East News Agency, an agency of the Egyptian government, allowed that the country’s hard currency reserves had fallen to just US$25 billion, from $36 billion in February, an alarming decline that described a course towards bankruptcy by late in 2011. The country’s central bank immediate denied the report in the official news outlet, averring that the real total was $28 billion. Emergency loans from Arab oil producers probably explain the discrepancy.

After the May Group of 20 (G-20) summit, where the world’s largest economies pledged $40 billion in assistance for the floundering Egyptians, it is clear that the industrial nations and the Arab oil-producers want to prevent Egypt from turning into a failed state, although it is far from clear who will pay how much and when.

In June, the Egyptians rebuffed an offer of $3 billion from the International Monetary Fund (IMF), evidently because the fragile ruling coalition could not accept even the suggestion that a foreign agency might dictate loan conditions. The IMF protested that no strings were attached to the funds, but even the smell of conditionality was too much for the military junta. Just after spurning the IMF, Egypt announced a $2.34 billion package from the Gulf states. Saudi Arabia meanwhile offered an additional $4 billion.

No matter how much aid the Egyptians obtain, it is not clear that much of it will stick to Egypt’s financial system. Jordan’s Finance Minister Mohammed Abu Hammour warned in Rome June 24, “There is capital flight and $500 million a week are leaving the Arab world.” Although Hammour did not mention countries in his talk before the Arab Banking Summit last month, most of the capital flight is coming from Egypt, and at an annual rate roughly equal to Egypt’s remaining reserves.

The Egyptian government has told the international organizations and G-20 governments that it can get by with $13 billion in assistance this year, but capital flight could erase that amount in a matter of months. It is hard to get accurate information on capital flight, and the fog of war is thickened by wild assertions.

Professor Niall Ferguson of Harvard University for example told a conference sponsored by the Israel Democracy Institute June 20, “The magnitude of capital flight from Egypt right now is roughly 10 times the aid promised to Egypt by the United States and Europe combined,” or $130 billion a year, more than twice the capitalization of Egypt’s stock exchange, according to the Jerusalem Post, recalling an old joke about Massachusetts Institute of Technology types who can’t read and Harvard men who can’t count.

Capital flight takes many forms, including the theft of diesel oil, rice, and other basic commodities from public stores for sale overseas. Arab language journalists and bloggers claim that theft is endemic, as I reported recently (Humpty Obumpty and the Arab Spring, Asia Times Online, June 1, 2011), although it is hard to quantity the problem. But the more one digs into the details of day-to-day food supply and the government’s efforts to ameliorate conditions, the more fragile Egypt’s position appears.

Egypt’s national food distribution company is now issuing ration cards for cooking oil, sugar, rice and pasta, but this stopgap effort to ensure food deliveries to the poor has created its own set of problems. Cheap sugar is the government’s provision of last resort; 64 million Egyptians are supposed to have ration cards entitling them to buy 2 kilograms of sugar apiece at prices well below market. That is important because the 33 kilogram of sugar per capita that Egyptians consume each year comprises roughly a fifth of the country’s total caloric consumption, by my back-of-the-envelope calculation.

The Minister of “Solidarity and Social Justice,” Dr. Gouda Abdel Khalek, pledged June 10 to import enough rice to honor the claims of ration card holders. According to Al Ahram, Khalek “confirmed that the crisis in rice supply the result of corporate monopoly of rice, in addition to the smuggling of rice out of the country in containers through sea ports.” That will no longer be a problem, Khalek added, because “the armed forces have invented a new device to detect the smuggling of rice to other countries, and this device has been deployed in sea ports, which led to a big decline in rice smuggling.”

In fact, the Social Justice Ministry announced June 13, Egypt had seven months’ supply of sugar, as well as precisely five months and 10 days worth of wheat, along with three-and-a-half months worth of cooking oil. Apparently these announcements were intended to inspire confidence in the country’s capacity to feed its people.

Egyptian bloggers, meanwhile, complain that ration cards are stolen from post offices before they reach recipients, and that stores refuse to honor them, preferring to sell to cash payers under the table.

The country’s central bank reported July 10 that year-on-year food price inflation in May was only 19%, compared to 19.8% the previous month, but it is evident from context that the official price index has the ontological status of a pink elephant. It is a measure of the credulity and indolence of the mainstream financial press that fabrications of this sort are circulated without a second glance.

Egypt’s government does not have the internal cohesion or popular credibility to negotiate financial support from the West, even though Western donors are willing to look the other way at corruption and capital flight, as it did for years in the case of the Palestine Authority. It appears to be using its existing reserves and what support it can glean from the oil producers to offer stopgaps against incipient starvation, although corruption and bungling limit their effectiveness. And the constant drip of capital flight threatens to exhaust the government’s slim margin of flexibility in addressing a potentially catastrophic situation on the ground.

That is all in the short term; in the long term, Egypt will have to find a way to deal the 45% of its population who are illiterate subsistence farmers, so unproductive that the country must import half its caloric consumption. Aid from the oil producers probably will delay Egypt’s descent into state failure by a few months.