Egypt announces $2.49 billion package to cope with inflation
Egypt on Monday announced a $2.49 billion package of income tax discounts, bonuses for state employees, increased pension payments and cash subsidies for lower and middle income Egyptians to cope with soaring inflation.
The package will go into effect July 1, the start of the fiscal year, according to a Cabinet statement.
The measures are partially designed to defuse discontent over steep price hikes resulting from reforms introduced in November, including floatation of the Egyptian pound, the introduction of value added tax and partial lifting of subsidies on fuel.
The reforms, part of a deal to secure a $12-billion loan from the International Monetary Fund, sent inflation soaring to more than 30 percent. More of the subsidies on fuel and electricity are expected to be lifted this summer.
“This inflationary wave is clearly not demand-driven, it was caused by a sudden increase in costs,” said Omar El-Shenety, managing director at Cairo-based investment bank Multiples Group to Bloomberg. That means that higher interest rates “will do little to contain it,” he said.
President Abdel-Fattah el-Sissi says the reforms, though biting, were the only way to revive the economy, battered by years of turmoil and high-profile terror attacks blamed on Islamic militants waging an insurgency in the north of the Sinai Peninsula.
With presidential elections due a year from now, el-Sissi risked his once sweeping popularity when he introduced the reforms. He has not said whether he would run for a second, four-year term, but he most likely would.
Monday’s package is welcome news to millions of Egyptians because it comes soon after the start of the holy month of Ramadan, when observing Muslims refrain from food and drink from dawn to dusk. During the month, Egyptians spend much more than they unusually do on food, feasting on large sunset meals along with traditional sweets. Food prices usually inch higher in response to Ramadan’s increased demand.