While the holy month of Ramadan is notorious for increased food consumption in Egypt and other Muslim-majority countries, Elham Mohamed, 40, a government worker, said it was very difficult for her to reach ends meet this year.
“I had to give up many items that I usually buy during Ramadan,” she said. “The prices have gone crazy. Even staples, such as bread, rice, sugar, flour, eggs and cooking oil, have all increased,” she added.
After nearly 20 years of working as an employee in a government office, Mohamed’s monthly salary is EGP 3,000, or $162. “We get allowances, bonuses and other little things here and there. Yet all the raises I get are no longer enough to buy a kilo of meat from the butcher, or even two chickens to feed my three children and my husband,” Mohamed said.
So when she read in government-owned newspapers the latest figures announced by the Central Public Mobilization and Statistics Agency (CAPMAS), stating that the inflation rate had jumped to 12.1% in March, against 4.8% in 2021, it was not surprised. .
“I don’t know exactly what inflation means, but prices have gone up at least 20-30%, and sometimes 50%. It can’t be just 12%,” Mohamed said as he described his hectic daily journey to buy food.
Thus, Ramadan specialties such as nuts, sweets and dried fruits have become unaffordable for Mohamed and millions of Egyptians considered poor or living below the poverty line – 30% and 4.5% respectively of a population of 103 million. “I’ve only had dates this year, and a few peanuts. That’s all we can afford. Other items such as almonds, hazelnuts and raisins are now luxury items and I can’t buy them,” she added.
According to the International Monetary Fund’s (IMF) latest World Economic Outlook report, released last week on the sidelines of the IMF and World Bank Group annual meetings, the Fund expects inflation to in Egypt reaches 7.5% in 2022 and accelerates to 11% in 2023. The annual urban consumer price inflation rate – used to measure the real impact of price changes on people’s lives measuring differences in the prices of goods and household spending – hit a three-year high of 10.5% in March. Analysts predict that annual inflation will continue to rise in the coming months. Estimates vary from 13% to 15%, before leveling off at the end of the summer.
What makes matters worse for Mohamed and other Egyptians is that most of the Ramadan items she refers to are imported, like many other staples the country depends on, starting with wheat and fuel. , and end with technology and machinery.
After the Central Bank of Egypt (CBE) decided on March 21, for the second time in less than six years, to devalue the local currency by 15%, prices immediately soared and are expected to continue rising. next year, at least. Overnight, the US dollar fell from EGP15.6 to EGP18.5. The CBE raised interest rates, with major government banks offering 18% on one-year certificates of deposit. According to informed sources, with the increasing pressure on Egyptian foreign exchange reserves, a further rise in interest rates or further devaluation of the local currency cannot be ruled out in the coming weeks. In order to mitigate the damage caused to consumers by the devaluation, the government fixed a fixed dollar exchange rate (16 EGP to the dollar) for imports of basic products and raw materials, including wheat.
Finance Minister Mohamed Maait recently said rising international wheat prices could cost Egypt nearly $1 billion in the new fiscal year. He also said that Egypt imports about 100 million barrels of crude oil per year, pointing out that the 2021-22 budget was calculated on the basis of oil costing $60 a barrel; it currently sits at over $100.
However, Oil Minister Tarek al-Molla argued that the surge in natural gas prices in response to the Russian-Ukrainian war would allow Egypt “to maximize natural gas exports to partially offset the increased cost of importing petroleum and petroleum products and supplying wheat”. ”
The local price increases can largely be attributed to soaring inflation rates around the world after Russia launched its invasion of Ukraine on February 24, accompanied by a sharp drop in tourism revenues, a rising oil prices and an outflow of foreign capital in light of expectations. rising interest rates in the United States.
As was the case with the economic losses suffered during the pandemic, the Egyptian government had no choice but to turn to the IMF, once again, for a third loan. Oil-rich Gulf countries, namely Saudi Arabia and the United Arab Emirates, which have backed President Abdel-Fattah el-Sisi since he ousted late Muslim Brotherhood chairman Mohamed Morsi in 2013, have also rushed to his aid, supporting the decline of the CBE’s reserves. , as well as pledges of investments to buy privatized public sector companies and shares in profitable banks and companies, for a total of almost 22 billion dollars. This time around, however, there was even a new contributor: after mending ties between the two countries, Qatar pledged nearly $5 billion in investments as part of the $22 billion total investment pot. Gulf dollars.
Hala el-Said, Egypt’s Minister of Planning and Economic Development, recently said: “The government plans to contain the inflationary tide by lowering its planned increase in public investment allocations to 15.2% from the 16.2 % expected before Russia. Ukrainian conflict.
In order to mitigate the impact of rising prices, the government has also introduced a mitigation package worth EGP 130 billion ($7 billion) which, among other measures, will increase wages and public sector pensions, introduce new tax measures and increase the country’s cash flow. transfer program.
In addition, the Ministry of Finance announced an allowance of 8-15% of base salaries for all government employees, ranging between EGP 100 ($5.4) and EGP 400 ($21.6). The government will also increase pensions by 13% and provide EGP 2.7 billion ($150 million) to add another 450,000 families to the nearly 3.7 million already benefiting from a government social program aimed at providing cash payments. to the poor, at a total cost of EGP 19.5 billion ($1.05 billion). Finally, the ministry is also considering tax breaks for state employees to deal with rising prices.
Meanwhile, the government is expected to raise fuel prices this month for the third time, further fueling inflation. Experts expect monthly inflation to peak in April to record annual inflation of 12.5-13%, reflecting higher oil prices.
Economic analysts say the Egyptian government’s measures amount to temporary painkillers and that more structural reforms that would lead to job creation and increased agricultural and industrial production are needed to ensure long-term economic stability. .
For decades, and especially since the oil boom of the 1970s, Egypt has had a more rentier economy, dependent on monetary income from tourism, remittances from Egyptians working abroad and income from the Suez Canal. The vulnerability of these sources, especially the first two, to external shocks means that any regional or international crisis can easily shake up the economy and send the government into crisis mode, seeking help from international donors or regional allies. Such help comes at a price.
This price is still paid by the poor majority of the country, in the short and long term. With a foreign debt that has risen from nearly $40 billion when President Sisi took office in June 2014 to $145 billion this year, future generations of Egyptians certainly have cause to worry. Critics attribute the rising debt to the costly so-called ‘national projects’ Sisi has launched since taking office eight years ago, including the construction of the ‘New Administrative Capital’, a high-tech complex that will cost billions of dollars. The official launch of the new capital was scheduled for June 2020, but has been postponed several times following the COVID-19 outbreak.
Sisi prides himself on revamping Egypt’s infrastructure, including the total overhaul of the country’s roads and railways and the reconstruction of many bridges, catapulting the country to more than 90 places on the international quality index. roads, from the 118th in 2014 to the 28th in 2021. While these ambitious projects are seen by the government as crucial to attracting future investment and creating jobs, many Egyptians wonder if they are such a priority compared to their direct and immediate needs in areas such as education, health and basic living conditions.
More surprising to Egyptians who are suffering the effects of inflation on a daily basis, whether from COVID-19, the war in Ukraine or government policies, are the positive reports released by the IMF and World Bank making the praise for Egypt’s continued economic growth.
The IMF revised its projection for Egypt’s real GDP growth in 2022 by 0.3% to 5.9%, from 5.6% expected in January, before slowing to 5% in 2023, the IMF said. Fund April 19. highest among oil importers in the Middle East region.
The Egyptian government has been more cautious; it lowered its real GDP growth expectation for the 2022/23 financial year – which starts on July 1 – to 5.5%, from 5.7% expected in January, amid the ongoing war in Ukraine.
The IMF report also pointed out that the war has led to large capital outflows from emerging markets and developing economies such as Egypt, tighter financial conditions for vulnerable borrowers and net importers of commodities, and pressure down on the currencies of the most exposed countries.
Khaled Dawoud is deputy editor of Al-Ahram Weekly and former chairman of the social-liberal Dostour party. The opinions expressed in this article are his own.
Photo by Ahmed Gomaa/Xinhua via Getty Images