With inflation figures climbing to another record high, Egypt decided to cut prices on staple foods in a move that is likely to only offer a temporary respite.
For the fourth successive month, Egypt’s annual urban consumer price inflation reached an all-time high, accelerating to 38% last month, up from 37.4% in August.
With food and beverage prices a key factor in driving up inflation, the North African country sought to ease pressure on consumers by agreeing with private producers and retailers to cut prices on staple foods by 15-25%.
The government initiative, which is scheduled to run for three to six months, should help reduce prices on multiple items, including beans, lentils, dairy, pasta, sugar, cooking oil, poultry, eggs and rice.
The government will facilitate implementation by scrapping customs duties for six months and liaising with the central bank to provide the required hard currency for importers, Egypt’s prime minister said. In return, retailers have agreed to forgo part of their profit.
A foreign currency shortage, which saw the pound lose half of its value against the dollar since March 2022, has been one of the main factors behind a record surge in inflation, with Egypt struggling to attract foreign investments.
Some business leaders welcomed the decision, saying the availability of dollars would be vital to keeping prices in check.
The initiative comes in view of the presidential elections … this happens every election as a kind of propaganda.
“Prices were high because merchants had to resort to the back market to get the necessary dollars for their imports. That will not be the case anymore as the central bank will make dollars available,” Alaa Ezz, the secretary-general of the Federation of Egyptian Chambers of Commerce, said in a television interview.
Egypt has kept its official rate at about LE30.90 per dollar since January, even though it trades at about LE40 per dollar on the black market.
Temporary solution
Analysts argue that such measures can only offer temporary solutions, with the root causes of Egypt’s economic crisis not yet addressed.
The country is under pressure to float its embattled currency to adhere to the terms of a $3bn loan agreement with the International Monetary Fund, which it signed in December last year.
The IMF’s first review of Egypt’s economic program was due to be held earlier this year, but was repeatedly delayed. The country said it had agreed with the IMF to hold the first and second reviews at the same time, the date of which is expected to be determined at the end of the year.
Egypt is required to pay $29.23bn in external debt service in 2024, with $14.59bn scheduled for the first half of the year. With the prospect of another pound devaluation very likely, prices may shoot up again.
“Inflationary pressures will likely remain high over the coming six to nine months due to the anticipated devaluation of the EGP and weakly anchored inflation expectations,” economist Hany Genena told Enterprise, an Egyptian economy-focused website.
With presidential elections due in December, Egypt is unlikely to adopt any painful measures before then. President Abdel Fattah El Sisi said he will run for a third term in office.
“The initiative to reduce prices of basic commodities is not sustainable,” Wael El Nahas, a political economist at Cairo University, told the website of Al Hurra, a US-government funded broadcaster.
“The initiative comes in view of the presidential elections … this happens every election as a kind of propaganda. Otherwise, where was the government when prices were rising insanely, and why did it not intervene?”
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