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Wednesday, 22 August 2018

Egypt: Costs of economic growth

The government has been caught between the need to streamline spending and to keep people happy during Ramadan

Niveen Wahish , Wednesday 16 May 2018
Shopping market for Ramadan
Egyptians shopping days before the begining of the Holy month of Ramadan in a governmental exhibition known as Ahlan Ramadan (Welcome, Ramadan) (Photo: Ahram)
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This was a good week for Egyptian economic policy-makers, as the country received the first upgrade to its credit rating in seven years when Standard & Poor’s (S&P), the international credit-ratings agency, upgraded its rating for the Egyptian economy from B- to B.

“The upgrade reflects strengthening GDP growth and rising external foreign-exchange reserves, alongside the implementation of reforms,” S&P said, referring to the government’s economic reform program supported by a three-year $12 billion Extended Fund Facility from the International Monetary Fund (IMF).

“We also anticipate that ongoing economic and fiscal reforms will underpin rising business confidence and sustain capital inflows,” the agency added. It gave Egypt a “stable” outlook taking into consideration risks from “still-high fiscal deficits and a high stock of relatively short-dated government debt issued at high-interest rates.”

Egypt’s budget deficit has come in at an average of 12 per cent during the last five years, and the government aims at trimming it to 8.5 per cent during the current fiscal year. Public debt has increased to more than 100 per cent of GDP and exceeds LE3 trillion.

On Monday, Moody’s, another international credit-ratings agency, included Egypt among seven emerging markets having the largest risks to global rising debt costs due to its high proportion of short or average maturity debt.

However, while the long-awaited S&P upgrade was good news, many people in Cairo were more concerned with the price of the city’s metro tickets, which this week increased by between 50 to 250 per cent to reach LE3, LE5 or LE7 depending on distance.

According to the government, the actual cost of the ticket is around LE16. Dozens of commuters protested against the rise in prices in some metro stations amid clashes with police that ended with the arrest of some protesters.

While the government has said before that it intended to increase the Cairo metro fares, the timing of the move took many by surprise as it had not previously embarked on price hikes before the holy month of Ramadan, which tends to increase household expenses, especially on food. Ramadan is expected to start today.

Since the government embarked on its economic reform programme in November 2016, many people have been squeezed by the devaluation of the Egyptian pound, pushing up the prices of goods and services and reflected in an inflation rate that reached more than 30 per cent last summer.

However, inflation has been cooling since the beginning of 2018. Annual headline inflation fell to 13.1 per cent year-on-year in April from 13.3 per cent in March, the official statistics agency CAPMAS said earlier this week. Monthly inflation increased by 1.5 per cent in April compared to one per cent in March.

Nevertheless, the cooling inflation has not consoled many, especially as the expenditure of many families tends to rise during Ramadan because of the cost of delicacies eaten in the holy month such as the nuts and dried fruit known as yameesh.

A kilogram of almonds now costs around LE350, more than a quarter of the official minimum wage.

Although Ramadan is a month of worship and fasting where ideally consumption should be less, most people spend more during Ramadan on food items.

Some statistics say that household expenses increase by at least 40 per cent during the holy month, as families tend to eat large meals when they break their dawn-to-dusk fast.

The government has tried to help by organising its annual “Ahlan Ramadan” exhibitions across the country offering food products at competitive prices. It is also selling discounted food staples in affiliated retailers as well as in Armed Forces outlets.

A Supply Ministry spokesman told Reuters that it had prepared for the month by making LE3.5 billion worth of subsidised products available in different outlets including sugar, oil, rice and pasta.

The Holding Company for Food Industries will also send vehicles stuffed with food to residents of low-income neighbourhoods who may not have easy access to retail outlets. Big supermarkets serving different income brackets are also offering discounts.

Sociologist Madiha Al-Safti said the increased consumption during the holy month was a “bad habit” imported into Egypt from the Gulf. “It was not the case two decades ago,” she said.

However, Mahasen Abdallah, a working mother of two, said she found the food discounts attractive, as they meant she could buy in bulk to save time and money throughout the rest of the month.

Yet, despite the discounts, some people still find the prices expensive. Fatma, a mother of two who works as a home cleaner, said she could only afford the basics.

Her ration card, which covers both her and her husband, was very useful in securing some of these, she said, as the card allows purchases of LE50 per person. She also has a card allowing her to buy subsidised bread.

She gets points for any bread she does not buy, which she exchanges for other commodities at government outlets.

Fatma said she hoped the government would put extra credit on the ration cards this year as it had last year, though the minister of supply said recently that this would not take place.

Fatma also receives a charity Ramadan food box distributed by charitable organisations and individuals and varying in size.

One of the larger boxes is distributed by Dar Al-Orman, an NGO, and this, weighing 20kg, contains basic food items such as rice, pasta, fava beans, lentils and sugar that can feed a family of five for 20 days.

“We do not waste donors’ money on yameesh, and we only provide the essentials,” Mahmoud Fouad, deputy head of Dar Al-Orman, told Al-Ahram Weekly. He said the organisation bought in bulk months before Ramadan started in order to secure competitive prices for the items.

Other charities of smaller size cannot always do the same, however. Aida Ali, who runs a small charity that collects money to help residents of villages in Upper Egypt, said that thus far she had only been able to distribute 60 Ramadan boxes.

“Three years ago we used to distribute 150 to 200 bags before Ramadan that included three times the items we put in the boxes now,” she said.

“There has been a decline in the value of donations, together with an increase in the prices of the items included in the boxes,” she added.

The larger charities were luckier, Ali said, as they could run advertisements on television appealing for donations.

She said that inflation had reduced the spending power of many middle-class families over the last two years, and this had meant that many donors only covered the needs of people in Cairo rather than sending donations to Upper Egypt.

However, Fouad said that his association had been seeing a 25 to 30 per cent increase in donations. A good part of this had come in the form of small donations from ordinary people.

“It just goes to show that Egyptian people have real sympathy for those less fortunate than themselves,” he said.

Additional reporting by Sherine Abdel-Razek

*A version of this article appears in print in the 17 May 2018 edition of Al-Ahram Weekly under the headline: Costs of economic growth  

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