Egypt Implements Drastic Austerity Measures

Egypt’s President Abdel Fattah el-Sisi has increased the level of pensions for military personnel and salaries for civil servants by 15 percent, amid a wave of price hikes linked to austerity measures. The raises take effect on July 1.

Egypt’s Austerity Measures

Egypt’s President Abdel Fattah el-Sisi has increased the level of pensions for military personnel and salaries for civil servants by 15 percent, amid a wave of price hikes linked to austerity measures. The raises take effect on July 1.

In recent days, the government has raised the price of fuel, drinking water, and electricity as part of a reform program tied to a three-year, $12 billion bailout loan from the International Monetary Fund, which Egypt secured in 2016. The country, whose economy sank following the 2011 uprising that overturned former president Hosni Mubarak’s government, hopes that its ambitious program of reforms will lure back the investors who fled during the Arab Spring. However, these deeply unpopular measures threaten to destabilize the country as life becomes increasingly difficult for the millions of poor Egyptians who rely on subsidies and low-cost staples.

The reforms are part of a program to cut the nation’s budget deficit and rebalance currency markets, both of which were requirements for securing the International Monetary Fund’s $12 billion loan. However, political opposition to such measures — including cutting subsidies, devaluing the currency, and implementing new taxes — runs high, especially given that tens of millions of Egyptian citizens rely on state-subsidized food. According to Egypt’s state-run Central Agency for Public Mobilization and Statistics (CAPMAS), nearly 28 percent of the country’s population lives in poverty, with some 5 percent suffering from “extreme poverty.” CAPMAS has fixed the poverty line at an average 482 Egyptian pounds per month — about $54 per month — and the extreme poverty line at 322 Egyptian pounds — around $36. Furthermore, the wealth disparity between Egypt’s rural and urban areas is striking, with more than half of upper Egypt’s rural inhabitants unable to meet their basic needs.

El-Sisi, who came to power after the army ousted Islamist President Mohamed Mursi following mass protests, has begun cracking down on critics of the austerity measures. While resistance to the reforms has been sporadic, the country’s long-term water shortages and endemic corruption have scuttled Egypt’s past attempts at economic reform.

The removal of subsidies on basic necessities will not only hit many poor and middle-class Egyptians hard, but may lead to a major crisis by making safe drinking water inaccessible to huge swaths of the population. Demographic trends in Egypt will make it nearly impossible for the country to provide sufficient potable water to its population, argues Mohamed Abu Ghar of Egypt’s Al Ahram newspaper. In a 2016  op-ed, Abu Ghar claimed, “A recent U.N. report said that 18 countries in the Middle East [including Egypt] will suffer a great deal by the year 2025 because of a serious water shortage…. A leading problem is the growing population in the country, which is seeing an increase of 2.7 million citizens a year…. By the end of President Abdel Fattah el-Sisi’s first four-year term in office, the Egyptian population will have increased by 11 million people, and by over 20 million by the end of his second term, should he be re-elected. This increase is catastrophic and amounts to collective suicide by the entire nation. These millions cannot access enough water resources neither [sic] for drinking nor [sic] for the irrigation of crops — not to mention the shortage of services they would face . . . .  In short, we need to come to terms with the fact that our annual share of Nile water is subject to consistent decrease and that we are already suffering a serious shortage that is prohibiting the Aswan High Dam from generating electricity beyond 10 percent of its maximum production capacity . . . . Egypt is faced with an imminent threat with far-reaching consequences, and we are not doing anything about it.”

The announcement of the recent increases in fuel and cooking gas prices — along with the prices of other basic necessities — came during Eid al-Fitr, the holiday that marks the end of fasting during the Islamic holy month of Ramadan. This is the third time Egyptian authorities have increased fuel prices since the current austerity plan was announced in 2015.

As of June, gasoline prices had been raised by up to 50 percent across Egypt. In addition, Cairo’s public transport ticket prices skyrocketed by 250 percent, drinking water by some 45 percent, and electricity by 26 percent. Cairo residents staged protests over the hike in metro fees but were unable to build any real traction, and these protests quickly fizzled out.

According to the country’s oil minister Tarek El Molla, the price hikes are on track to save the country some 50 billion Egyptian pounds (or around $2.8 billion) in allocations for state subsidies in the 2018-19 state budget. The third price hike since late 2016, it is expected to make life significantly more difficult for the average Egyptian citizen, struggling as they are already with astronomically high unemployment and rising prices for basic necessities such as foodstuffs and water. Even taxi fares have been increased by 10 to 20 percent, according to Prime Minister Mustafa Madbouly’s recent cabinet statement.

Amid the widespread price hikes, the Egyptian government has pledged that the price of bread — the country’s main staple — would remain unchanged, going so far as to task the Ministry of Supply with offering subsidies to bakeries to ensure that the rising cost of gasoline would not make bread inaccessible to the millions of Egyptians who rely on inexpensive subsidized bread for their daily meals. The number of citizens who use government subsidy cards to obtain essential foodstuffs stands at around 71 million.

A recent Reuters article quoted a Cairo-area employee, Mohamed Abed Rabbo, who claimed that he spends some 40 percent of his income on transportation. Angry about the rising prices, Abed Rabbo told the news outlet that “since the last price rise, I have been unable to support my wife and daughter.” Only time will tell if popular anger will be harnessed into more than mere intermittent protests of Egypt’s drastic austerity measures.