C airo took a historic decision last Thursday, floating the Egyptian pound as part of a final push to secure a $12 billion IMF loan, and tackling a dollar shortage as well as eradicating a soaring black market. The price of the dollar subsequently jumped from its previous peg of EGP8.8 to the dollar by around 10 pounds throughout the week. Hours after the flotation the price of fuel was hiked by 30-46.8%, another measure demanded by the IMF, which immediately impacted food and transport prices.
Prices for food and transport are a delicate matter for Egypt’s poorer and middle class citizens as the country’s economy has been battered for years. Economic troubles in part triggered the mass protests that led to the ouster of Hosni Mubarak in 2011. So far, however, no major unrest has unfolded or seems imminent, while security forces were taking precautionary measures.
The pound’s devaluation to market levels means difficult days lie ahead for many Egyptians with a drastic increase in inflation expected in the short term. “Inflation might continue to escalate for months before citizens are able to adjust their spending habits,” Ramy Oraby, an economist at Pharos Holding Company, told independent Egyptian news outlet Mada Masr. Speaking to The World Weekly, Justin Dargin, a leading Middle East energy expert at Oxford University, said: “The government hopes that eventually FDI will be attracted to Egypt which would allow it to build up its foreign currency reserves to help eliminate the shortages in basic food stuffs and other essential goods.”
The Egyptian Centre for Economic and Social Rights called the reform measures an “economic war” on poor citizens, arguing that the decisions “could raise poverty rates to unprecedented levels in Egypt's history”. In a sign of a deepening rift with a major economic donor, Saudi Arabia this week informed Egypt that it would halt its monthly shipment of 700,000 tonnes of oil products indefinitely. “It was clear that Gulf aid would not continue indefinitely, especially as the threat of IS and the Muslim Brotherhood is receding,” Mr. Dargin said.
Nevertheless, there could be more positive news for the Egyptian government around the corner with the IMF set to discuss the loan on November 11. The fund’s chief Christine Lagarde had previously said she would recommend the approval of the deal. Investors praised a higher level of predictability and the stock market hit an eight-year high on Tuesday. Egypt still faces problems with red tape and regulation, issues a planned investment law could alleviate, albeit only in the medium term.
President Sisi was unequivocal, making it clear there was no going back on the reforms.