China may be fighting a resurgence of Omicron in Shanghai, one of its largest cities, but among many Egyptians there is a belief that Covid-19 is now history. Nanny Essam, 50, does not intend to go for her booster vaccine dose. The Western world, she said, is abandoning Covid-related restrictions, so the pandemic must be over.
Many Egyptians have thrown caution to the wind and ditched their face masks. Plans are underway for gatherings which during the past two Ramadans were scrapped as a result of Covid-19 precautions. Hypermarkets teem with people doing their Ramadan shopping despite the price increases caused by the war in Ukraine and a 16 per cent depreciation of the pound.
The government has released a LE130 billion stimulus package to cushion the effect of the devaluation by adding more people to the Takaful and Karama programmes and bringing forward wage and pension increases. There are attempts to ensure basic food products are available at stable prices: hundreds of “Ahlan Ramadan” shopping outlets have been established, and are offering basic food commodities at discounts of up to 30 per cent. While no new official inflation data is available, it is estimated that food prices in Egypt have risen by up to 20 per cent in the month since Russia invaded Ukraine as the war disrupted the global food supply chain and sent oil prices soaring.
Fatma Abdel-Fadil, a pensioner in Maadi, told Al-Ahram Weekly that this year she won’t be inviting her children’s families to break their fast together on the first day of Ramadan. “Such a meal would not cost me around LE2,500 which is almost half my monthly pension. I will send each family a Ramadan bag instead,” she said.
Like many Egyptian families, the government has also had to redraw its budget, and is striving to target social spending towards the most vulnerable groups. It is also placing development projects that have not begun, but which have a clear dollar component, on temporary hold. The result is a downward revision of the government’s own GDP forecast for FY 2022-23 to 5.5 per cent from 5.7 per cent before the Ukraine conflict.
During the pandemic government investment kept the economy afloat, says investment advisor Khaled Hamza. It pumped LE358 billion into the economy in FY 2021-22, up from LE281 billion in the previous year, helping Egypt maintain a positive growth rate of 3.6 per cent. But with the repercussions of the war in Ukraine the government has few options apart from austerity measures.
Two years on from the outbreak of the Covid-19 pandemic and the fallout from the war in Ukraine is expected to hit government finances hard. Cairo has already requested support from the International Monetary Fund (IMF). “Staff are working closely with the authorities to prepare for programme discussions with a view to supporting our shared goals of economic stability and sustainable, job-rich, and inclusive medium-term growth for Egypt,” the IMF said in a statement.
GDP growth will inevitably be hit by reduced individual and company spending, says Hamza, as purchasing power is compromised by the depreciation of the pound and higher costs. And with companies facing increased production costs just as people have less money to spend, Hamza warns there is a very real threat of stagflation — i.e. high inflation coinciding with high unemployment and low demand across the economy.
Government measures to help the most vulnerable are making a difference, says Hamza, though it is the middle classes, who have shouldered the brunt since the economic reform programme began in 2016, who are likely to be most affected.
Mohamed Ezzat, communication officer at leading charity Al-Orman, says that on the back of the pandemic and spiralling inflation, charity organisations have expanded their focus on the poorest and unemployed to include low-paid employees from both the private and public sectors. Once considered members of the middle class, they have been steadily pushed down the social strata.
This will definitely increase with Ramadan’s giving spirit which has not been affected by the economic difficulties.
Fortunately, says Ezzat, soaring prices and the expectation of more inflationary pressure to come have not impacted on the level of donations. “In times of crisis,” he believes, “those who can afford to do so tend to donate more.
“We saw a similar pattern during the Ramadan that followed the floatation of the pound in 2016, when prices jumped by 50 per cent, and during the two years of the pandemic when many businesses were forced to close.”
Like many charities, Al-Orman offers Ramadan bags to be distributed among the needy during the holy month. Donors pay the cost of the bags, the contents of which vary from one charity to another but usually include dry food staples like rice, sugar, cooking oil, dates, and pasta.
Al-Orman agreed with its suppliers the prices of the contents of its Ramadan bags six months ago and so was not affected by last week’s devaluation of the pound. Even so, prices were much higher than last year.
“To make it less expensive for some donors,” says Ezzat, “this year we are offering two sizes of the bags, at two different rates.”
In addition to Ramadan bags, Al-Orman is also distributing meat which is now beyond the budget of many families. The average price of a kilogramme of meat has increased by up to 30 per cent since last Ramadan.
Smaller scale charitable initiatives are also feeling the pinch. For years Mustafa Imam and his neighbours in an upper-middle-class residential area have collected money and bought Ramadan food items to distribute among the area’s street cleaners. “It brings the neighbours and their children together to experience the Ramadan spirit,” he says. But with the beginning of the Covid-19 pandemic they began distributing money rather than food items, thinking this might be more useful to the recipients.
Imam has noticed that in the last two years the donations have become smaller. He believes this could be because of the growing financial burdens on families, and a larger number of charities inviting people to donate.
Things might get worse before they get better. According to many observers, any new agreement with the IMF is likely to include a more flexible exchange rate, leaving to pound vulnerable to further downward pressure.
After $15 billion fled from the local debt market in recent weeks, driven by the US Federal Reserve’s decision to raise its benchmark federal funds rate for the first time since 2018, increasing dependence on direct investments rather than focusing on foreign investment in domestic debt is one possible solution to the dilemma, says Hamza.
The government already agreed last week to sell its stake in five listed companies, including blue chips like Commercial International Bank and Abu Qir Fertilisers, attracting interest from buyers such as the Abu Dhabi Sovereign Fund.
These are not only investments that will not be scared away easily, says Hamza, they could easily attract more investors to Egypt.
*A version of this article appears in print in the 31 March, 2022 edition of Al-Ahram Weekly.