Analysts expect the anticipated devaluation of the Egyptian pound (floatation) to exacerbate price increases, at a time when a large portion of Egyptians are facing financial pressures.
The Middle East Eye quoted Sherif Saeed, a cafe worker from Giza, saying that in 2011, he used to buy a breakfast meal consisting of ful medames, salad, bread, and an egg from a local street vendor for 6 Egyptian pounds. However, the same meal now costs him over 40 pounds.
Saeed mentioned, “The metro ticket, which used to cost one pound a decade ago, is now 20 pounds. I work on the street all day and I’ve started seeing many homeless people. They are respectable individuals, but they can’t afford to buy a house.”
The Egyptian currency plummeted this week to an unprecedented level of 72 pounds to the dollar in the parallel market, before recovering to 55 pounds against the greenback. However, the price in the official banking system remains at 31 pounds.
Reports indicate that the decline in the currency’s value is imminent to align the official rate with the parallel rate, allowing financial transfers and other foreign currencies into the economy.
Dominic Froschtor, an economic expert focusing on Africa at the French insurance company “Coface,” was quoted by the website saying, “The current level of the Egyptian pound (official) is unable to compete. They need to devalue the currency, a condition set by the International Monetary Fund for its financial program. As long as there is no currency devaluation, there will be no program.”
The report confirms that Egypt is on the verge of agreeing on a new financial package with the International Monetary Fund (IMF), as it already owns a $3 billion package from the Fund, but has received only a small portion due to slow progress in selling state assets, exchange rate flexibility, and other economic reforms set by the Fund.
Egypt postponed the devaluation of the currency – a key demand of the IMF – in the period before the last presidential elections, as it would have worsened the already high inflation in the country.
Khaled Ikram, the former director of the Egypt department at the World Bank, told Middle East Eye, “The currency devaluation will come, but it will only be a bandage. The measure will change the nominal exchange rate, but not the real exchange rate adjusted for inflation. There is a risk of a spiral of currency devaluation and inflation.”
Inflation reached a record level of 38% in September, before slightly declining to 34% at the end of last year, leaving Egyptians struggling to cover their expenses.
Safa, 58, a cleaner at the main hospital in Warraq Island, Giza, mentioned that she has stopped buying meat and poultry, and now makes all her food from starch, potatoes, and bread, adding that it’s difficult to buy vegetables like onions and tomatoes now.
Froschtor stated, “The government must take care of the people, and it cannot suffice with applying IMF treatments, otherwise there may be a significant risk of riots. It must help the most needy people through social programs,” referring to the “Takaful and Karama” program, a social security program sponsored by the state.
On the internal level, Khaled Ikram, who has analyzed economic development in Egypt for over 40 years, mentioned that the country’s spending is determined by local factors, but its revenues depend heavily on volatile external factors.
Ikram added, “There is a fundamental political economic issue internally, as the successive governments have provided basic public services, government subsidies, and low taxes in exchange for staying in power. The philosophy of Egypt is bread and monitoring to prevent (the population) from sabotaging themselves.”
In the face of such volatile external factors, circumventing them will require Egypt to take long-term steps in manufacturing and exports, addressing perennial issues of low productivity, education, and infrastructure. For Egyptians facing financial hardship, structural considerations are far from their direct concerns.
Safa noted, “There is no benefit from education now. There are university graduates coming to the hospital who want to work as security guards or gardeners. Under this system, we will always be poor, and we will never be looked at as prosperous and respectable.”
Ahmed Hassanein, 23, a law graduate from Alexandria, explained that he gave up a clerk job paying 2500 pounds monthly to become a security guard in a luxury residential complex, where he now earns 4000 pounds a month, with free food and accommodation.
He added, “It’s a tiring job, but it’s what’s available. I send a thousand pounds to my parents and save the same amount. I work 6 days a week in shifts lasting 12 hours. I have to work and hustle like a chicken to feed myself and my family, otherwise we’ll be hungry in these dark days.”
