“Thank God they did not devalue the pound last Thursday,” Ahmed Adel, a computer science teacher in Cairo, said with a sigh of relief after he learnt that the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) had kept exchange rates unchanged.
The committee meets almost every six weeks to take monetary policy decisions such as increasing or cutting interest rates. Some people are also under the wrong impression that it also decides the exchange rate. “We cannot keep up with prices as it is. What will happen if the pound loses more value,” Adel asked.
A recently published cartoon in one Cairo newspaper by cartoonist Mustafa Al-Sheikh shows a woman on the second floor of an apartment building lowering a basket from her balcony so the vegetable seller below can put the vegetables she has ordered into it and pick up his money. The seller tells her to put an extra pound in the basket as prices have increased in the few minutes it has taken her to lower the basket.
The cartoon expresses what many people are going through. Enas Metwalli, an administrative assistant in Cairo, went with her nephew who is soon getting married to buy a new fridge. Things were getting more expensive by the day, and they wanted to make sure they had bought what he needed quickly.
“The price was already more than it had been just a couple of weeks before,” Metwalli recounted. And while they were going to buy it anyway, the seller then told them that even that higher price no longer applied. “He changed the price tag as we were standing in front of the fridge,” she said.
The CBE devalued the pound in March by almost 16 per cent in a surprise move intended to help preserve foreign-currency liquidity, as Tarek Amer, the CBE governor at the time, put it. Since then, the pound has been steadily depreciating, losing almost 24 per cent of its value in total when added to the March devaluation that was the second in six years.
In 2016, the CBE floated the pound, causing it to lose half of its value as part of an economic reform programme backed by a $12 billion loan from the International Monetary Fund (IMF). Today, Egypt is negotiating another loan agreement with the IMF, though the exact amount remains unclear.
According to a research note by UK-based bank Standard Chartered published on 13 September, another one-step 20 per cent devaluation could push inflation to 30 per cent in Egypt. But, “we expect forthcoming foreign-exchange and rates adjustments to be more gradual,” the bank said, forecasting the US dollar to sell at LE20.75 by the end of 2022 and LE21.75 by the end of 2023.
The sliding value of the pound is manifesting itself in higher inflation. The annual urban inflation rate in Egypt increased in August to 14.6 per cent compared to 5.7 per cent the same time last year. Inflation as a whole is at levels not witnessed since 2017.
The value of the pound has been depreciating on the back of a hard-currency crunch caused by the war in Ukraine. The escalating prices of strategic commodities such as wheat coupled with lower tourism revenues because of the war have hit the government hard. What has made things worse has been the fleeing of foreign investors from Egypt’s debt market. Some $20 billion in foreign outflows fled Egypt this year as investors in local debt exited to the safer US bond market.
The US central bank the Federal Reserve has been aggressively raising interest rates. Last week, it announced a 0.75 per cent increase in rates, the third consecutive hike of that size and the fifth this year, all part of the Fed’s attempts to curb US inflation, which has reached a four-decade high.
This is attracting investors away from emerging markets and pushing up interest rates around the globe.
INCOMES SLASHED: Many people are seeing their incomes slashed as the pound loses its value, and this is causing them to change their spending priorities, said Said Ahmed Hassan, a regional fresh food buyer at Lulu hypermarkets in Cairo.
Because of the higher prices, people are buying fewer items, sometimes just 50 per cent of their needs, Hassan said, adding that “this very much feels like a recession.” Many retailers are making offers and cutting the prices of basic goods. Other products, such as white goods and televisions, have skyrocketed in price, and many others are out of stock, he said. However, government initiatives are helping, especially with basic commodities, Hassan noted.
Government-affiliated supermarkets offer basic goods at lower prices. In addition, as of this month an exceptional monthly bonus of LE300 is being disbursed via ration cards to nine million families to spend on subsidised essential goods. Individuals with ration cards already receive LE50 per person in cash to spend in government shops on basic commodities. They are also entitled to five loaves of subsidised bread per person per day.
While the government is helping low-income families, the rest are adapting. Rania Galal, a government employee in Cairo, is no longer buying in bulk, for example. She divides her monthly housekeeping money into five batches and uses one each week to buy essentials first and saves one for emergencies.
“I plan a menu for each week and buy accordingly, no extras,” she said. She also goes to wholesale fruit and vegetable markets to buy in bulk and divide things with the family. For LE100 she was able to get 10 kg of mangoes, instead of around four at her regular grocers, she said.
Galal also used to buy bran pasta because it was the healthier choice, but when its price doubled from around LE25 per pack to over LE50 she decided to give it up. “There are more important things,” she said.
Cairo shopper Nisreen Sayed is also no longer keen on single brands, though she tries not to give up on quality. As a result, she looks for offers among the brands she prefers. “I only buy what I need now, when in the past I would buy other items that were not on my shopping list,” she said.
Even toilet paper is now selling at unimaginable prices, she said. She used to get a packet of 12 for LE50, but now it is LE80. She has decided to remain within the same budget even if it buys a smaller package. Sayed also seeks outlets that make more offers. Some shops sell products with close expiry dates but that are still good, for example, and these are cheaper, she said.
For families with children there are also school-related expenses. Maissa Mohamed, a Cairo housewife and a mother of three, does not know how much the total fees for her children’s schools are. “They keep telling us they are not clear yet,” she said. She said that one of her children’s schools had already collected two installments before the academic year had started, something which is not the norm.
“We will only know the total when they ask us to pay the last installment,” Mohamed said. While the ministry of education stipulates that schools should allow parents to pay in four installments, not all schools are implementing this rule. Mohamed must also budget for printing, as her youngest daughter’s school uses work sheets rather than textbooks. The school sends out the sheets every weekend for parents to print them. Whereas a page used to cost LE0.25, it now costs between LE0.75 and LE1 because both paper and ink are imported and have thus become more costly.
Mohamed has already changed the detergent she is used to because it has become too expensive. Likewise, she has changed the mineral water they used to drink. She has given up tea bags entirely. Something she cannot give up are eggs, which her children need for growth. While a carton of 30 eggs now sells at LE70, slightly cheaper than a month ago when it cost LE80, it is still almost double the price it was in 2020.
Mohamed has contemplated going back to work to help with expenses, but she has given up the idea. If she were to work, she would need to pay someone to take her children to school and their sports events and other tasks that she currently does. “It is more cost-effective if I stay at home,” she said.
PRODUCTION PROBLEMS: Food producers are also finding the present crisis to be unprecedented, said Hani Berzi, chair and CEO of snack-maker Edita. “Dealing with it is not in my toolbox,” he said, adding that nonetheless they were trying to keep things going.
The world today is all about “shrinkflation,” he noted, with producers offering smaller packages so as not to raise prices. However, Berzi said, this can only be done up to a point without compromising quality. Manufacturers also have factories to maintain and employees who must get paid.
The economic situation is reflected in business sentiment. The Egyptian Business Barometer issued by the Egyptian Centre for Economic Studies (ECES), a NGO, retreated during the third quarter of 2021-2022. It is based on a survey of 120 companies representing various industries and measuring their sentiments about the economy.
According to the new figures, the retreat reflects a recession in the domestic market due to the higher prices of goods and scarce raw materials due to import restrictions and the inability of the banks to provide hard currency. This is threatening to bring some economic activity to a halt. The companies surveyed were also pessimistic about this year’s July-September period, fearing that they will continue to face domestic difficulties, supply chain disruptions, and higher costs for shipping due to the war in Ukraine.
Meanwhile, the government is trying to support the economy to bring in hard currency. Besides the loan requested from the IMF, it aims to attract other investment, and some Gulf Cooperation Council (GCC) sovereign wealth funds are lining up to buy stakes in state-owned companies.
GCC members have promised some $22 billion in investments to help Egypt out. Minister of Planning Hala Al-Said said this week that Egypt was planning to raise $6 billion by June 2023 through selling stakes in government-owned companies, according to the US financial service Bloomberg.
Furthermore, it aims to increase its natural-gas exports by saving 15 per cent of the local natural gas used for electricity generation. A cabinet report released this week showed Egypt’s natural gas and liquefied natural gas (LNG) export revenues had reached $8 billion in the fiscal year 2021-22, up from $0.6 billion in 2013-14.
“While everyone is doing their best to make ends meet, what is more important is God’s blessings,” said Metwalli, adding that despite the hardships when one needs something it is always possible to find the means to buy it.
*A version of this article appears in print in the 29 September, 2022 edition of Al-Ahram Weekly.