Floatation has other aspects: an inflationary spiral looms on the horizon of Egypt's economy

Analysts call for the adoption of social packages while devaluing the Egyptian pound (Getty)

Analysts expect that the expected devaluation of the Egyptian pound (float) will exacerbate the rise in prices, at a time when a large segment of Egyptians are suffering from financial pressures.

The Middle East Eye website quoted Sherif Saeed - a café worker from Giza - as saying that in 2011 he used to buy a breakfast meal consisting of fava beans, salad, bread and an egg from a local shopping cart for 6 pounds, but the same order now costs him more than 40 pounds.

Saeed says, "A metro ticket, which was one pound a decade ago, is now 20 pounds. I work on the street all day, and I started seeing a lot of homeless people. They are respectable people, but they cannot buy a house."

The Egyptian currency fell this week to an unprecedented level, reaching 72 pounds to the dollar in the parallel market, before improving again to the level of 55 pounds against the green note, but the price in the official banking system remains at 31 pounds.

Reports continue indicating that a devaluation of the currency is imminent in order to bring the official price closer to the parallel price, so that financial transfers and other foreign currencies will enter the economy.

The website quoted Dominique Fruchter, an economist who focuses on Africa at the French insurance company Coface, saying, “The current level of the (official) Egyptian pound is not competitive. They must devalue the currency, which is a condition set by the International Monetary Fund for its financial program, as long as "If there is no devaluation, there will be no programme."

"Just a bandage"

The report confirms that Egypt is on the verge of agreeing on a new financial package with the International Monetary Fund, according to multiple reports, as Cairo already has a package worth $3 billion from the IMF, but it has received only a little of it, due to slow progress in selling state assets and in Exchange rate flexibility and other economic reforms identified by the Fund.

Egypt postponed devaluing the currency - a major demand of the International Monetary Fund - in the period leading up to the last presidential elections, as it would have exacerbated the already high inflation in the country, according to the site.

Former Director of the Egypt Department at the World Bank, Khaled Ikram, told Middle East Eye, “The devaluation will come, but it will only be a bandage.” The measure will change the nominal exchange rate, but not the real inflation-adjusted exchange rate, and he warned of the possibility of a downward spiral. Currency devaluation and inflation.

“Remittances - which came through informal channels because they were more convenient - will move to formal channels, but if inflation continues to be higher than competitors, the black market will return again,” Ikram added.

Inflation reached a record level of 38% in September, before falling slightly to 34% at the end of last year, while rising prices left Egyptians struggling hard to cover their expenses, according to the report.

The website quoted Safaa (58 years old), a cleaner at the main hospital on Warraq Island in Giza, as saying that she stopped buying meat and chicken, and now makes all her food from starch, potatoes, and bread, adding that vegetables such as onions and tomatoes are difficult to buy now.

Fruchter said, “The government must take care of the population, and it cannot be satisfied with applying the International Monetary Fund’s treatments, otherwise there may be a great risk of riots. It must help the most needy people through social programs,” referring to the Solidarity and Dignity program, which is a social security program. Social welfare is sponsored by the state.

"Baking and Watching"

In turn, Khaled Ikram - who has analyzed economic development in Egypt for more than 40 years - says that while Cairo's spending is determined by local factors, the country's revenues depend largely on volatile external factors, as quoted by the site.

Ikram adds that at the internal level there is a fundamental political economic issue, as successive governments have provided basic public services, government subsidies, and low taxes in exchange for remaining in power, saying, “The Romans had bread and circuses. Egypt’s philosophy is bread and surveillance to prevent (the population) from disturbing themselves.”

But when it comes to adding more to state coffers, the economy is exposed to international factors. Ikram says, “Suez Canal revenues depend on the state of the global economy, (financial) aid decisions are made with foreign capital, and financial transfers depend on the economic health of the place where the workers are located.” ".

The website stated that many external factors have destroyed Egypt in recent months and years, and the war in Ukraine in 2022 led to a rise in oil and food prices, especially wheat, of which Egypt is the largest importer in the world, and Russia and Ukraine are among the largest suppliers.

Recently, there has been a noticeable decline in tourism - one of Egypt's largest sources of income - due to the war on Gaza.

Meanwhile, the Suez Canal - another important source of revenue - saw traffic slow by up to 30% compared to last year due to shipping companies avoiding the Red Sea following fears of being attacked by the Houthis, and remittances from Egyptians abroad fell by 29%. During the first quarter of the current fiscal year compared to the corresponding quarter of last year.

"No benefit"

According to the site, circumventing such volatile external factors will require Egypt to take long-term steps in manufacturing and export, which means addressing decades-old issues around poor productivity, education, and infrastructure, but for Egyptians suffering from financial hardship, structural considerations are far-fetched. Far from their immediate interests.

Safaa said, "There is no point in education now. There are university graduates who come to the hospital and want to work as security guards or gardeners. Under this system, we will always remain poor, and we will never be seen as prosperous and respected, so obtaining a degree or not will not matter." ".

The website quoted Ahmed Hassanein (23 years old), a law graduate in Alexandria, as saying that he gave up the job of a clerk with a salary of 2,500 pounds per month to become a security guard in a luxury residential complex, where he now earns 4,000 pounds per month and gets free food and accommodation.

He added, "It is a tiring job, but this is what is available. I send two thousand pounds to my father and keep the same, and I work 6 days a week in 12-hour shifts. I have to work and run like a chicken to feed myself and my family, otherwise we will go hungry in these dark days." .

Source: Al Jazeera + British press