'Bread, freedom, social justice': Egypt's economic crisis

As the end of Ramadan draws near across the Muslim world, Egypt continues to see record-high inflation rates, which have manifested in skyrocketing prices of consumer goods causing a surge in food prices.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), March this year saw a 12.1 percent inflation rate in comparison to last year’s 4.8 percent for the same month. Food prices rose by 4.5 percent, with the most notable category of inflation being bread and grains, which rose by 11 percent.

In February, inflation rates in rural areas rose to 10 percent, while inflation in urban areas increased by just over 8 percent, the highest levels recorded in almost three years.

In Egypt, food is always the first thing to be affected by inflation.

These record numbers can be explained by a number of local and global factors, which have been met with several regulatory measures from the Egyptian government that to observers appear to be contradictory in nature.

"In Egypt, food is always the first thing to be affected by inflation"

Currency devaluation and IMF assistance 

Last month, the Egyptian government and the Central Bank of Egypt (CBE) devalued the Egyptian pound allowing it to fall against the dollar by approximately 17 percent, causing the exchange rate to fall to EGP 17.5 to USD 1, having previously been pegged at EGP 15.7 to USD 1 for six years despite the exchange rate being liberalised as part of its 2016 structural adjustment program with the International Monetary Fund (IMF).

The CBE’s deregulation of the exchange rate will likely lead to a significant increase in inflation rates, which are expected to increase dramatically, according to multiple sources. 

Also last month, the IMF reported that Egypt had requested additional support from the financial institution as it was reportedly struggling with its widening balance of payment deficit. It is unclear whether the programme would include a new loan or not. 

Should the new programme include a loan, it would be Egypt’s third since 2016, when it signed a largely unpopular three-year structural adjustment agreement that was accompanied by $12 billion, then considered to be the largest in the region, and implemented an accompanying austerity program that caused poverty rates to rise by nearly five percentage points between 2015 and 2018, according to Mada Masr. 

In 2020, Egypt took an additional loan from the IMF worth $5.4 billion and received $2.8 billion in Social Drawing Rights (SDRs) as part of the IMF’s pandemic recovery program.

Global and local factors

These decisions came as a response to various overlapping emergencies which caused fundamental uncertainty over what lay ahead on Egypt’s socio-economic horizon.

Since 2016, there have been a number of indicators that show that Egypt had entered a new era, whereby it has become more closely attached to the global financial system and the ensuing volatility that comes with it.

Mounting global inflation, Egypt’s position in global value chains, massive price hikes caused by the pandemic, unequal trade relations, coupled with a dearth of Egypt’s foreign currency reserves due to continuous borrowing, caused a major foreign capital exit from global south markets, including Egypt’s bond market.

This interplay of complex factors was exacerbated by Russia’s invasion of Ukraine, which brought forth more problems such as huge increases in oil prices, a sharp decline in tourism revenues and a spike in wheat prices. 

The war heightened stress already exerted by the pandemic on supply chains and drove up the prices of key commodities in Egypt’s government imports, mainly wheat, grains and energy, which causes a massive threat to the nation’s food security, as Egypt is the world’s largest importer of wheat.

The devaluation of the pound added another level to the spike in inflation, and Egypt’s reliance on imports makes it particularly sensitive to price shocks. In a country that depends on importing essential commodities, inflation will likely be the ensuing result, as almost all food and energy commodities are tied to the price of the dollar.

Sure enough, as the value of the pound dropped by 17 percent the cost of certain commodities rose by as much as 50 to 200 percent, threatening to plunge more families into poverty as they struggle to afford basic staples. 

"As the value of the pound dropped by 17 percent the cost of certain commodities rose by as much as 50 to 200 percent, threatening to plunge more families into poverty"

Food security

At the beginning of April, the Cabinet announced that Egypt’s stockpile of wheat designated for the bread subsidy system will most likely run out in 2.5 months.

If the government does not intervene to regulate the local market, any shortages or increases in prices will lead to disastrous consequences, especially during Ramadan, analysts say.

Earlier this month, the government decided to ration the amount of flour it delivers to bakeries to produce subsidised loaves of bread, but beneficiaries of the subsidy program have been unable to purchase their full share.

The ministry in charge of supply stated that the decision would be in force until the end of the month, saying that there is normally a decrease in the demand for bread during Ramadan when the majority of Egyptians are fasting.

However, bakery owners have stated otherwise, saying that this Ramadan has so far seen an unusual increase in bread consumption, which could be a result of high inflation prices pushing up the price of other food commodities.

The decision to ration flour has been undermined by a lack of centralisation, with bakery owners claiming that it has been implemented inconsistently or even reversed in areas where citizens gathered outside bakeries to complain about the amount of rationed bread that they were able to buy. One bakery owner stated that bakeries are now bearing the brunt of people’s anger over the reduction of bread rations.

Reversal of austerity policies

Despite the grim conditions, some economic experts believe that the recent developments could force a reversal of austerity policies that have caused increased social inequalities in recent years.

Already, the Egyptian government has taken emergency measures to act as a buffer to reduce commodity price increases, and it made the decision to fix the import customs exchange rate for basic commodities and production requirements until the end of April, coinciding with the end of Ramadan.

More notably, the Egyptian government also took the decision to step in to fix the price of unsubsidised bread, arguably the country’s most vital food commodity, in public and private bakeries.

According to the decree, bakeries must abide by the new set of prices for a period of three months or until further notice, and those that violate the new regulatory frameworks are set to face fines from the Consumer Protection Agency.

The decision came after the price of unsubsidised bread increased by approximately 50 percent per loaf as both wheat imports from Russia and Ukraine were disrupted.

"This marks the first time the government has fixed the price of bread sold in private bakeries since the 1980s, shortly after the bread uprisings, or the Bread Intifada, of 1977"

These measures are in direct contradiction to Egypt’s austerity measures to cut expenditure and scale back government intervention in the market since the IMF’s 2016 austerity program and Egypt’s own 2014 economic program.   

However, despite these efforts, Oxford Economics anticipate consumer prices to continue to soar in the coming month, taking a toll on low-income Egyptians.

Bread riots?

It is unclear whether Egypt will see structural changes in relation to its reliance on food commodities in the coming period, or if it can keep fixing the price of subsidised bread for much longer, and how that will be reflected in its future dealings with the IMF.

However, this marks the first time the government has fixed the price of bread sold in private bakeries since the 1980s, shortly after the bread uprisings, or the Bread Intifada, of 1977, which were a result of an IMF structural adjustment program that required the removal of bread subsidies.

The uprisings ended after two days of state violence but forced President Anwar Sadat to reverse the decision to cut subsidies.

While Egypt is now much more integrated into the global financial system and susceptible to its whims, historically, the price of food has often resulted in uprisings or at least intense political and social reactions, especially bread given its historical significance as the social contract between ruler and ruled.

In 1984, similar to Egypt, Tunisia had its own bread uprisings also spurred by an IMF austerity program, causing a spike in the price of bread. While the uprising was suppressed, the incident weakened the then-president Habib Bourghiba enough to have him removed in a coup three years later. Irony abounds as Ben Ali would suffer a similar fate in 2011 as revolutions spread across the Arab world.

In more recent memory, in the aftermath of the global financial crisis in 2008, the price of bread and consumer staples were affected around the world, especially in countries that were pegged to the dollar, Egypt and Tunisia among them, causing huge food price hikes in 2010.

These conditions eventually became the economic foundations of the so-called Arab Spring, the 2011 uprisings that gave us the famous slogan 'Aish, Horreya, Adala Egtema’eya', meaning 'Bread, Freedom and Social Justice'.

Nihal El Aasar is an Egyptian writer and researcher based in London. 

Follow her on Twitter: @NotNihal