“Flying” wages in Egypt... Fears of a new devaluation of the pound

Highlights: Egyptians are anticipating the largest wage increase of its kind, 50%, recently announced by President Sisi. This is the second increase in less than a year - and its cost amounts to 180 billion pounds ($5.8 billion) The last increase in wages was 500 pounds, reaching 4,000 pounds last September, and it is the sixth in 5 years. Banking and economic expert Sahar El-Damaty ruled out that the social package decision would be linked to another imminent decision related to reducing the pound.

Egyptians working in the country's administrative apparatus are anticipating that the largest wage increase of its kind, 50%, will take effect at the beginning of the new month, amid fears of another sharp devaluation of the local currency (the pound).

Egyptians are anticipating the largest wage increase of its kind, 50%, recently announced by President Sisi (French)

Cairo -

Egyptians working in the state’s administrative apparatus are anticipating the largest wage increase of its kind, which President Abdel Fattah El-Sisi recently announced by 50%, to enter into force at the beginning of the new month, amid fears of another sharp devaluation of the local currency (the pound).

The unprecedented package aims to urgently reduce the living burdens on citizens and contain the largest possible repercussions of external economic crises and turmoil and their internal impacts, according to a Cabinet statement.

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For his part, Undersecretary of the Ministry of Finance, Ahmed Al-Sayed, denied rumors that the approval of this social package was linked to any future economic matters, referring to the imminent decision to devalue the pound in response to the conditions of the International Monetary Fund.

The largest increase of its kind

This is the second increase in less than a year - and its cost amounts to 180 billion pounds ($5.8 billion). The last increase in wages was 500 pounds, reaching 4,000 pounds last September, and it is the sixth in 5 years, an indication of the continued falling into the spiral of high prices and the decline of the pound.

This is the second increase in less than a year at a cost of 180 billion pounds, and the last increase in wages was 500 pounds (Reuters)

The incentives include various job levels, starting from the sixth grade up to the high and excellent grades, and benefit 4.5 million employees at an annual cost of about 16.4 billion pounds.

Workers in public economic bodies - who number about 336.4 thousand employees - also benefit from this increase, at an annual cost of about 1.2 billion pounds, according to the Minister of Finance.

A few days ago, President Sisi issued an urgent social package, which local media described as the largest of its kind, to be implemented starting next month, which includes:

Raising the minimum wage by 50%, to reach 6,000 pounds per month (about $195).
Increasing the wages of workers in the state and economic bodies between 1,000 and 1,200 pounds per month, depending on job grade.
An additional incentive starts at 500 pounds for the sixth grade, and increases by 50 pounds for each grade to reach 900 pounds.
Increasing pensions by 15% for 13 million citizens, and increasing “Solidarity and Dignity” pensions by 15%.
Additional increases in wages for members of the medical profession, teachers, and faculty members.
Raising the tax exemption limit to 60 thousand pounds by 33% for all state employees, including the private sector.

The allocations for wages and workers’ compensation in the state’s draft general budget for the fiscal year 2023/2024 amount to about 470 billion pounds, or the equivalent of about 15.2 billion dollars (4.0% of the gross domestic product).

The pound floats and wages fly

Banking and economic expert Sahar El-Damaty ruled out that the social package decision would be linked to another imminent decision related to reducing the pound, and said, “Lowering the pound is an economic decision whose purpose is to reach a balanced price between demand and supply, but what happens is that the markets take advantage of government decisions to increase interest rates or Increase wages in order to increase prices.

Al-Damaty expressed - in statements to Al-Jazeera Net - her belief that the new large social package is not to compensate for past increases in prices, especially since there was a recent increase less than a year ago, but it comes after studying the impact of economic developments on prices between the two times. Taking into account that the inflation rate reached 40% last year, and burdened the fragile and middle classes, the social aspect had to be reconsidered so that people could live and continue.

Regarding how to manage these allocations in light of the budget deficit, Al-Damaty explained that the state has been living with a budget deficit for more than decades due to the steady population increase and the size of the support allocations, but “I believe that the new austerity program by halting new projects and reducing the import bill will save large sums.” To support the social package.

She pointed out that the imminent agreement with the International Monetary Fund includes financial allocations to provide a social protection umbrella for the poor and vulnerable classes, and work to reduce the deficit in the state budget, taking into account that Egypt is going through an exceptional period that began with the Corona virus outbreak crisis, passing through the Russian-Ukrainian war, then the Gaza war and its repercussions. This affected the state's resources.

Current budget deficit

849 billion pounds ($27.5 billion) cash deficit (the difference between expenses and revenues).
1,120 billion pounds ($36.3 billion) in interest on domestic and external public debt.
The same amount is 1,316 billion pounds ($42.6 billion), the value of the installments to be paid from the public debt.
Thus, the public debt burden amounts to 2,436 billion pounds (about 79 billion dollars), or 114% of the state’s total public revenues, amounting to 2,142 billion pounds (69.3 billion dollars).

The increase goes in increments

It is not possible to be better than it was, says Ashraf Hosni, a member of the Board of Directors of the Foodstuffs Division of the Chambers of Commerce in Cairo, indicating in his interview with Al Jazeera Net that “a new increase in wages does not compensate for the large increases in prices, and the decision is in order to take into account the difficult economic conditions due to the decline in wages.” The value of the pound and the rise in prices.

But he expressed his expectation that the decision would pave the way for a new devaluation of the pound, and thus an increase in the prices of basic goods and services that have become costing the state a lot, such as fuel, water, and others.

While it is expected that the decision will be reflected positively on state employees, Hosni believes that it will not benefit workers in other sectors, whose numbers are about 5 times state employees, but it may be a catalyst for a new wave of wage increases that will benefit everyone and thus will be reflected in the prices of services provided to citizens. .

Egyptian public debt burdens represent 114% of total revenues (Reuters)

The number of workers in the private sector is estimated at about 21 million, while their number in the informal (parallel) sector is about 7 million.

The private sector absorbs 80% of workers in Egypt, compared to 20% who work for the government, the public sector, and public business sector companies.

Regarding the minimum wage in the private sector, the Undersecretary of Finance said that the National Wages Council is concerned with private sector wages so that they are closer to increases in the government sector.

A “false” feeling of a pay increase

On the other hand, economic expert Ibrahim Nawar believes that “the decision to increase the minimum wage is an attempt to save employees from the monster of inflation, and an important indicator that the state is about to reduce the value of the pound. Any funding for any purpose without real resources contributes to igniting inflation and increasing the deficit in the state’s general budget.” ".

He explained, in his speech to Al Jazeera Net, that since the budget deficit has actually been increasing since the last fiscal year until now, this increase is of an inflationary nature, and it is also possible to increase pensions for all employees, including former ministers and ambassadors.

According to Nawar, all those with fixed income are suffering from a real ordeal, as well as those who benefit from social security payments such as the Takaful programme. These increases have a negative impact on the economy, but they leave a false feeling among the beneficiaries that their income has increased. Therefore, it is expected that the inflation rate will return to rising after it was It has trended lower in the last two months.

Source: Al Jazeera