After the Central Bank of Egypt had liberalized the exchange rate of the Egyptian pound, Egyptian debt reached 742.5 billion Egyptian pounds (£38 billion), according to Middle East Monitor, citing Al-Mesryoon, an Egyptian independent news website.
Sharif Hasan Qassim, an economics professor at the Al-Sadat University, said “Our foreign debt, which was until yesterday night estimated at $55 billion (489.05 billion Egyptian pounds) based on 8.9 pounds per one dollar, became 742.5 billion pounds based on an exchange rate of 13.5 pounds for one dollar,” as reported by the Egyptian news website.
The economics professor added that liberalizing the exchange rate had massive negative repercussions on the size and scope of the Egyptian national and foreign debt, which increased by 253 billion Egyptian pounds in one night.
Qassim also warned that liberalizing the exchange rate had negative consequences on the Egyptian savings as it decreased the value of savings by up to 49 % which means that “the Egyptian who has 100 pounds will lose half of their purchasing power.”
In fact, the floating of the Egyptian currency would also increase the price of basic goods in a country that already suffers high inflation rate.
The economics professor was quoted as posing the question, “Who will pay the value of this loss?”
This year Egyptian foreign debt increased by $7.7 billion to reach $55.8 billion. By the end of 2016, Egypt’s debt will likely reach its highest level for a quarter of a century.
Moreover, soon after the Egyptian government’s decision to float its national currency, Egypt’s petroleum ministry announced new raises in the fuel subsidized prices, according to al-Ahram.
The price of 80-octane gasoline hiked by 30.5 %from EGP 1.60 per liter to EGP 2.35.
The price for 92-octane gasoline increased from EGP 2.60 to 3.50, while the diesel price is now EGP 2.35 compared to 1.80, according to the statement.
The price of a small gas cylinder increased from EGP 12.5 to 15. However, the big cylinder will cost EGP 30 instead of 25.
This move is part of the Egyptian government economic reform program to secure the $12 billion loan from the International Monetary Fund (IMF).
The government plans to slash its total subsidy bill in the new budget by 14 % to reach EGP 130.1 billion in the 2016/17 fiscal year compared to the current fiscal year to end in June.
The government plans to cut off the petroleum subsidy bill by 43.5 % to reach EGP 35 billion and the electricity subsidy bill by 6.4 % to EGP 29 billion in 2016/17.
By such major changes, the Egyptian government is exerting all its effort to appease the IMF to shower its economy with the$12 billion loan, however successive governments have previously failed to curb energy product subsidies, fearing backlash from a public used to cheap fuel.
Officials are concerned about the impact of the sudden devaluation on Egypt’s poor which worsened by the authorities’ decision to peel back energy subsidies, another condition of the I.M.F. loan.
IF the economic conditions didn’t improve another revolution will erupt
In this context, Hassan Nafaa- professor of political science-said,” if the country’s economic conditions do not improve within three to six months at least, we will end up with a revolution of the hungry, “according to Daily News Egypt.
In addition, Nafaa explained that the implementation of the International Monetary Fund’s (IMF) terms “will have a serious impact on the state, especially as not all of these terms were studied or decided on by Egyptian experts who understand the conditions of the state.”
Nafaa stressed that these measures were imposed by the IMF, which is an organization that supports free trade that supports businessmen and threatens low-income citizens.
The floating decision of Egyptian pound which has been taken by the CBE on 3 November has been negative. “This decision will increase prices in the country across the board, amid months of price hikes following the appreciation of the US dollar exchange rate and the activation of the value-added tax (VAT)—another IMF condition for the loan.”
According to Daily New Egypt, several political parties, politicians, and rights groups have condemned the government for floating decision, “believing that low-income citizens are the only ones who will suffer the dire consequences of this decision.”
In the same context, some political parties released statements that condemns the decision as the Bread and Liberty party and the Socialist Poplar Alliance party (SPAP). The party said, “this decision will impact low-income citizens as prices will rise while the value of the national currency will fall, thus they will be unable to afford the forecasted high cost of living.”
On the social media platforms citizens expressed their anger, complaining that “their financial conditions could not afford the expected increases in prices as a result of the pound’s flotation.”
Regarding cutting off the oil subsides, which is other conditions the IMF attached to the $12bn loan-fears rise from an imminent popular outburst as a result of this decision that would lead to higher transportation costs.
According to Alaa Essam, the youth general secretary of the Al-Tagamou party, “the state could have limited the petroleum price changes to fuel only, which higher-income citizens tend to utilize, and not diesel or octane 80, which is preferred by public transportation.”
The government failed to deal with Egypt’s deteriorating economy and missed out on taking alternative measures, according the youth general secretary of Al-Tagamou party.
At an earlier time, Al-Tagamou party rejected the IMF’s conditions, believing such terms will only cause the current economic situation to grow worse over time.it is noteworthy that Al-Tagamou party is considered a general supporter of government policy.
In the same context, Medhat Al-Zahad – the Head of the SPAP -agrees, saying that the state is trying to convince people that these decisions will contribute to economic reform, especially once the IMF loan comes through.
He stressed that the state’s debts will increase, especially as Egypt does not have enough resources to pay these debts back. Egypt hard currency sources as tourism and foreign investment have withdrawn as a result of security unrest and political instability that escalated since al-Sisi led a military coup in 2013.
Medhat Al-Zahad noted that his party and others, as well as economic experts, have warned against the consequences of this loan, but the state did not respond.
He expects that the high prices will lead to outrages among the Egyptian people who will go out into streets and protest. He said, no one could blame them in this case.
Moreover, citizens will develop pessimistic attitudes and grow angry, and will subsequently choose to take to the streets to voice their concerns.
He concluded by saying that there were several alternatives that could have been taken so as to not reach this point.
Al-Zahad said,” Egypt could have ceased constructing its national mega projects that are consuming a great deal of money, such as the New Administrative Capital and the 1.5m-acres reclamation Project.”
Critics have previously blamed al-Sisi for grandiose projects that have sucked up billions in aid and taxpayers’ money. They include a large expansion of the Suez Canal, which failed to generate higher shipping revenue, as well as plans for a new, Dubai-like capital city in the desert.
According to the three observers, the only ones who will benefit from the IMF’s terms are businessmen and their projects, as they will not be affected by the price hikes as much as ordinary citizens.
Another revolution will erupt if the situation is not solved and this time it will be the revolution of the hungry, according to the three observers.
Would the Egyptian people who have been suffering throughout the past three years bear more increase in prices and inflation? The new sudden liberal policies of the Egyptian government would probably agitate pubic dissent the coming days especially with calls for protests over the deteriorating economy on Nov. 11 — dubbed “11/11” in the media known by the “Revolution of the Poor.”
In this context, Eric Trager, fellow at the Washington Institute for Near East Policy, said,” It is difficult to say what Egyptians’ breaking point will be.”
Christian Science Monitor magazine said that the appetite for protests seems small with police campaigns and arrests to stop any protest against the regime. “Calls for a Ghalaba Revolution – or revolution of the poor – with nationwide protests on Nov. 11 have resulted in police reportedly detaining eight citizens for their suspected involvement. Tens of thousands of activists remain behind bars – a warning for any citizens who wish to mobilize.”
H.A. Hellyer, senior nonresident fellow at the Atlantic Council “said, “It is entirely possible there might be riots as a result of economic pressures – but I don’t see, at present, much sign that a significant political protest will take place.”
The danger is that, with no levers to voice their discontent and no indication that the economy will improve, frustration could continue to fester.
A former member of parliament and a professor at the American University of Cairo -Amr Hamzawy said, “Other regimes such as Mubarak opened up the political space to defuse socioeconomic pressures.” He added, “But my fear is that they will resort to more oppression – and no one knows the path that will take us.”