Economic crisis looms in Egypt as both government and poor struggle

It has pushed many out of the middle class, while the poor are cutting back on life’s essentials.

Egyptians buy fruits at a supermarket in Cairo on February 26. Annual inflation reached 26.5 per cent in January, the highest in five years, and food prices in urban areas soared 48 per cent last month, according to official figures. | Photo Credit: Amr Nabil/AP Photo

A group of women stands in front of a vegetable vendor at a street market in one of Cairo’s oldest neighbourhoods, yelling in frustration. “Every day there are new prices,” one said. “When will this war end?” another shouted, cradling a baby in her arms.

Russia’s invasion of Ukraine, now in its second year, has pushed up food and energy prices worldwide, adding another layer to Egypt’s economic crisis.

Soaring inflation, a severely weakened currency, and other problems have followed decades of government mismanagement and broader disruptions, starting with the turmoil from the 2011 Arab Spring popular uprising, then years of militant attacks, followed by the coronavirus pandemic and the war in Ukraine.

The crisis has pushed many Egyptians out of the middle class, while the country’s poor—about one-third of the population—are cutting back on life’s essentials. Many are asking how long they can survive like this.

Hany Hassan has found himself struggling to feed his four school-age children. His pay from his job as a bartender at a coffeehouse is buying less and less. “This past year was the hardest in my life,” said Hassan, 43, who earns roughly $110 a month working 12-hour shifts seven days a week.

“I am scared that one day I won’t be able to feed the kids.” Annual inflation reached 26.5 per cent in January, the highest in five years, with food prices in urban areas soaring 48 per cent, according to official figures.

Proteins a prohibitive luxury

Many essentials including rice, cooking oil, bread, and most recently eggs, have all doubled in cost in Cairo’s supermarkets. The prices of 1 kg of chicken or other meat have almost doubled from a year ago, hitting 300 Egyptian pounds (roughly $10) for meat and nearly 90 Egyptian pounds (roughly $3), for chicken. The surge has made those proteins a prohibitive luxury for all but the wealthiest.

The war in Ukraine, which rattled the global economy, hit Egypt where it is financially vulnerable. The most populous Arab country and the world’s biggest importer of wheat needs to buy a majority of its food from other countries to help feed its population of more than 104 million.

“It is, therefore, important to view Egypt’s inflation problem within the context of its broader external position issues,” said Callee Davis, an economist at Oxford Economics Africa.

Egypt’s import bill first ballooned because of higher global prices for commodities like fuel and wheat that are purchased in dollars, and this led to foreign currency shortages, Davis said. That forced the Central Bank of Egypt to pass policies to preserve the country’s foreign reserves, including restrictions on imports, which drove inflation even higher, Davis said.

Economic growth slowdown

The war also has slowed Egypt’s economic growth. In February, the European Bank for Reconstruction and Development revised its forecasts for Egypt’s growth this year to 4.3 per cent, down from its previous projection of 5 per cent.

For many, hardships started in 2016 when President Abdel Fattah el-Sissi’s government embarked on a reform programme intended to reverse longstanding distortions in Egypt’s economy in return for loans from the International Monetary Fund. The programme introduced new taxes and included substantial cuts in state subsidies on basic goods—a policy that dated back decades.

Western governments and international financial institutions hailed the austerity measures. However, they have made life difficult for regular Egyptians. El-Sissi has blamed the war in Ukraine for the most recent inflation spike. “Circumstances are tough for all the world. This crisis is not ours,” he said in a recent speech.

To help poor and middle-class families face the repercussions of the measures, the government bolstered welfare programs, raised salaries of civil servants, and postponed cuts to subsidised bread and planned electricity price hikes. It also established hundreds of government-owned markets across the country that sell staples for cheaper prices.

Then the government resorted to the IMF for a new bailout loan last year, the fourth in six years. The hope is that the $3 billion deal will help generate another $14 billion from Egypt’s international and regional partners, including wealthy Gulf monarchies.

But Gulf Arab states seem increasingly reluctant to help Egypt as they have over the past decade. “We need to see reforms. We are taxing our people. We are expecting also others to do the same, to do their efforts. We want to help, but we want you also to do your part,” Saudi Finance Minister Mohammed al-Jadaan said at the World Economic Forum’s annual gathering in Davos, Switzerland, in January.

Mitigating measures

Egypt has pledged to uphold the IMF-guided reforms, including a free-floating exchange rate and lessening the military’s powerful grip on the economy—a significant concession.

The government in December 2022 adopted a privatisation initiative, saying it would withdraw from industries not considered strategic by 2024. The policy aims to bolster the private sector’s contribution to the economy to 65 per cent by 2025 from 30 per cent in 2021.

Leaders are facing criticism for their handling of the economy and costly infrastructure projects, including a new $45 billion capital building, other developments, and highways. Many have taken to social media to complain, with some calling for the government to step down.

One of the country’s richest people, billionaire businessman Naguib Sawiris, recently told a Lebanese newspaper that Egypt needs a political and economic overhaul. The government has repeatedly defended such megaprojects as essential for improving living conditions and generating jobs for the growing population.

HA Hellyer, a geopolitical expert at the London-based Royal United Service Institute for Defense Studies, said the pressures on the Egyptian economy would be staggering for any government. “Some good moves have been taken, the question is whether these are sufficient to turn the economic crisis around or not, and if not, what other options are the authorities willing to entertain?” he said.

In the meantime, Egyptians are growing more despondent.

Samira Abdel-Wahab, an accountant working for the state-run electricity company, roamed from stand to stand at the Megharbleen street market in Cairo’s Darb el-Ahmar neighbourhood, looking for the cheapest prices. “I fear the damage is beyond repair,” said the 37-year-old mother of three.