Egypt has announced a massive social protection package worth over $26 billion to help its citizens cope with the soaring cost of living amid a looming currency devaluation.
The package, which the authorities described as the largest in the country’s history, includes a 50% increase in the minimum wage for state workers, a 33% rise in the income-tax exemption limit, and additional subsidies for food and pensions.
The initiative is Egypt’s latest bid to tackle the impact of a grueling two-year economic crisis that has been worsened by the war in Ukraine, which disrupted the supply and increased the prices of key commodities such as wheat and oil.
Egypt, which imports about half of its food needs, has seen its annual inflation rate surge to 38% in September, the highest level this century. The inflationary pressures have eroded the purchasing power of millions of Egyptians, especially the poor and the middle class, who spend a large portion of their income on food.
The social protection package is also seen as a preemptive move to cushion the expected blow of another currency devaluation, which analysts say is inevitable given the chronic shortage of foreign exchange and the widening gap between the official and black market rates.
Egypt’s pound has lost more than half of its value since 2022, when it traded at around 15 per dollar. It is now at 30.8 per dollar at the official rate and around 45 per dollar on the parallel market.
The currency crisis has hampered the country’s ability to repay its external debt, which reached $125 billion in June 2023, equivalent to 62% of its gross domestic product. Egypt has been in talks with the International Monetary Fund (IMF) to increase its loan program from $3 billion to over $5 billion, but the negotiations have been delayed by the pandemic and the political uncertainty ahead of the presidential election in December.
The government hopes that the social protection package will ease public discontent and boost the popularity of President Abdel-Fattah El-Sisi, who is widely expected to win a second term in office. El-Sisi has overseen a series of economic reforms since he came to power in 2014, including cutting fuel subsidies, introducing a value-added tax, and floating the pound in 2016.
However, the reforms have also triggered social unrest and criticism from human rights groups, who accuse the regime of cracking down on dissent and stifling civil liberties. El-Sisi’s supporters argue that the reforms are necessary to restore stability and attract foreign investment after years of turmoil following the 2011 uprising that toppled longtime ruler Hosni Mubarak.
Despite the economic challenges, Egypt has shown some signs of resilience and recovery in recent months. The country’s GDP grew by 4.1% in the fiscal year 2022/23, beating the government’s target of 3.3%. The tourism sector, which accounts for about 12% of the economy, also witnessed a 27% increase in revenue in 2023, reaching $14 billion.
Egypt’s economic outlook remains uncertain, however, as the country faces multiple risks from regional instability, the pandemic, and currency volatility. The government has vowed to continue its structural reforms and diversify its sources of foreign exchange, while also expanding its social safety net to protect the most vulnerable segments of the population.
Source: Bloomberg
