- Sally Nabil
- BBC – Cairo
“The people are dead. They slaughtered us. The prices are insane!” This is some of what we heard from a middle-aged man in one of Cairo’s affluent neighborhoods when we went out to ask people about the price hike, in light of the unprecedented decline of the Egyptian pound against foreign currencies.
“All I want now is a cemetery to be buried in and rest in. But even the prices of cemeteries are no longer affordable,” says the man in his forties.
The Egyptian pound fell to its lowest level ever against the dollar. Until last March, the price of the dollar was close to sixteen Egyptian pounds, but now the value of the Egyptian pound has declined a lot, bringing the price of one dollar to about twenty-seven pounds.
The pound has lost more than half of its value against foreign currencies in just a few months, and this coincides with a painful inflationary wave hitting the country.
This is not the first time that the pound has witnessed a float, or a subtraction according to the value of supply and demand. Its value fell by more than fifty percent in 2016 when Egypt obtained the first loan from the International Monetary Fund. Then its price witnessed relative stability in the following years until March of last year.
According to official figures, inflation rates are around twenty percent, while experts say the real inflation rate could be much higher. Everyone complains, regardless of his social class.
“come with us”
We continue our tour of the streets of Cairo to meet a housewife in her fifties who is deeply concerned about the future of her children.
“We can’t buy meat because it’s so expensive. We hardly eat chicken once or twice a month,” the woman adds, with anger and exhaustion evident on her face.
She directed her speech to Egyptian President Abdel-Fattah El-Sisi, saying, “Please be kind to us. We are poor and toiling, and we earn our daily bread with difficulty. You can take whatever you want from the rich.”
Experts say “exchange rate flexibility” was a key requirement of the International Monetary Fund, which recently agreed to lend Egypt $3 billion for a period of 46 months. This is the fourth time that Egypt has received a loan from the fund. Since 2016, the government has borrowed about $20 billion, becoming one of the countries that borrow the most from the Fund.
Over the past year, the Egyptian treasury has witnessed a clear shortage in foreign exchange reserves, which caused several crises, on top of which was the faltering of imports, in a country that relies heavily on commodities coming from abroad.
Due to procedural complications in import operations, huge quantities of goods have accumulated in the ports for months, but the government recently succeeded in releasing some of them. Last month, Prime Minister Mostafa Madbouly announced the release of goods from the ports worth $6.25 billion, out of a total value of goods estimated at about $14 billion.
Hani Geneina, an economist and lecturer at the American University in Cairo, says that the dollar crisis is linked to global factors such as the Russian-Ukrainian war, which caused turmoil in financial markets, and a noticeable rise in commodity prices, in addition to local factors represented in the increase in government spending.
Genena explains to the BBC that many emerging economies, including Egypt, have suffered due to the exit of so-called hot capital from the markets, “more than $20 billion left the market at the beginning of last year,” coinciding with the outbreak of the Russian-Ukrainian war, according to the report. Saying it.
As for the internal factors that contributed to the creation of this crisis, the economist believes that the government’s expansion of infrastructure projects and their completion in a short period of time caused pressure on the country’s dollar resources.
Geneina adds that “the projects in and of themselves are useful, but what was accomplished in a year or two would have been better accomplished in five years, for example,” adding that the acceleration in government spending prompted the state to borrow in order to complete these projects.
In recent weeks, social media pages have been filled with complaints about the difficulty of buying dollars in banks, which led to the recovery of the black market for foreign currencies. And people rushed to buy dollars or gold bars as a safe haven for savings at a time when the value of the local currency collapsed.
In an attempt by the state to confront these phenomena, the two largest government banks offered savings certificates with returns amounting to twenty-five percent, which is the highest return rate in the history of Egyptian banks. With the issuance of these certificates, fears emerge of a recession hitting the markets, because the returns of these certificates will be higher than any gains that investment projects may achieve, which pushes people to refrain from investing.
About two weeks ago, the Central Bank of Egypt raised interest rates on deposits and borrowing by three percentage points. The central bank said in a statement that it will use all its monetary tools to contain inflationary pressures. He added that he determines the interest rate based on the expected inflation rates and not the prevailing inflation rates.
Alaa Abdel Halim, an economist, told the BBC, “It is better for Egypt to eliminate the black market, as the state treasury depends on the transfers of Egyptians abroad, as it is one of the most important sources of providing foreign currency, and these transfers must take place within the banking system and not in the parallel market.”
Regarding fears of recession, Abdel Halim says that issuing these certificates “is like a bitter medicine. The government now gives priority to fighting what is known as (dollarization), that is, converting all savings into dollars. We can only talk about investment when the price of the pound stabilizes against the dollar.”
“Who are we going to?”
The Egyptian state asserts through its various officials that the current economic suffering is part of a global circumstance due to the Russian-Ukrainian war, but people in the street are now refuting this logic.
A thin man in a popular neighborhood in Cairo says, “We thought at first that the crisis was only in wheat. But the global wheat crisis has been resolved and Ukraine has returned to exporting wheat. As for our suffering, it continues. The prices of all commodities have risen. I no longer eat meat, not even chicken.”
He adds angrily: “The state has crushed us. To whom shall we go? What will become of us?”
It seems that the people on the street no longer pay attention to the talk of economists or specialists. What concerns them is their daily living, and the extreme difficulty they face in order to secure the most basic basics of life.
Stock market indexes rise
On the other hand, Hani Geneina affirms that the money market welcomed the decision to liberalize the exchange rate with great enthusiasm. This is evidenced by the rise in the stock market indices.
However, he agreed with Abdel Halim that the Egyptian pound is currently weaker than its true value. As the value of the dollar is supposed to reach about 23 pounds.
Genena explains this weakness by the existence of “a time gap between taking the decision to liberalize the exchange rate and entering dollar resources, because some funds are waiting for Egypt to take more reform measures in order to enter the market.”
So far, Egypt has only received the first tranche of the IMF loan, which is estimated at $350 million. Genena explains that the government cannot back down from the policy of liberalizing the exchange rate because there is a state of strictness and global scrutiny with regard to lending to emerging countries, so Egypt must abide by the terms of the fund.
Troubled countries usually resort to borrowing from the IMF in order to send a message of reassurance, which in turn attracts foreign investors. Genena says that there are partners from the Gulf and Europe who are waiting for the state to abide by the terms of the agreement with the fund in order to pump their money into the Egyptian market.
He added, “I expect the implementation of a large number of acquisitions within the market during the coming period, which will limit the dollar crisis and contribute to market stability and control of inflation.”
During the past few months, the Egyptian market witnessed the acquisition of shares by Gulf capitals from several companies in various sectors, which sparked widespread criticism of the government, which was accused of selling the country’s assets in order to solve the debt crisis.
Absence of information
And there are those who believe that the state of uncertainty surrounding the economic situation in Egypt, in addition to the fluctuation in the value of the currency, may be a factor that repels the foreign investor.
Questions abounded on social media about the lack of clear government data that would reveal to people the details of the next stage.
Alaa Abdel Halim believes that the Egyptian state provides more information to international institutions such as the IMF than it provides to the Egyptian citizen, who now has to search for information with those international entities.
One citizen wrote on Twitter, “Why doesn’t the government talk to us?”