World Economy

Egypt Premier Defends Painful Shock Therapy

Egypt Premier Defends Painful Shock TherapyEgypt Premier Defends Painful Shock Therapy

Egypt’s prime minister tried to reassure an anxious public on Friday as Egyptians expressed alarm and anger over prices that swiftly soared a day after the nation’s currency was floated, sending its value tumbling as fuel subsidies were cut.

In the capital’s working class district of Imbaba, residents spoke of a sudden spike in transportation and food prices, mainly because of the increase in petrol costs, ABCnews reported.

Gaber Ramadan, a manual laborer, told The Associated Press that his commute to work rose from 2 to 3 pounds overnight, and even his morning falafel went up from a quarter to a half pound. Even the slightest increase stings, he said, as he earns 1,200 Egyptian pounds ($77.23) a month, a third of which goes to rent.

The unprecedented shock therapy measures are part of a raft of reforms aimed at salvaging Egypt’s crumbling economy and securing a $12 billion IMF bailout.

But it has also raised fears of a backlash from a public already struggling with high inflation and mounting unemployment.

On Thursday, the Central Bank devalued the Egyptian pound from 8.8 to 13 to the dollar, and then floated it. By Friday, the pound was at 15 to 16 to the dollar.

At midnight on Thursday, the fuel subsidy cut also came into effect, increasing gas prices by 30 to 47%, depending on the type.

 No Time to Lose  

Prime Minister Sherif Ismail appeared on state TV at a press conference with six other ministers, and said the government doesn’t have the “luxury” to wait.

But he pledged that steps would also be taken toward “improving the living conditions of citizens.” He said past measures were only temporary “pain relief”, but that the latest drastic moves were part of a comprehensive reform program.

The government aims to achieve a growth rate of no less than 6%, compared to the current 4.3%, and reduce the budget deficit from 12 to 10%, he said.

Egypt’s foreign currency reserves dwindled in recent years as tourism dried up over fears of terrorism, remittances dropped because of low oil prices, and Suez Canal revenues diminished because of a decline in global trade.

Investment and business activity stalled, with inflation hitting 14% and unemployment 13%.

Government efforts to shore up the currency generated a black market where the dollar reached a rate of 19 pounds—compared to 8.8 in the banks.

After oil, rice and medicines, sugar has run out in Egypt. The price for sugar in supermarkets and black markets are skyrocketing.

About 68 million of the total 92 million people receive food subsidized by the state through small consumer stores run by the ministry of supply and internal trade.


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