Lately, there has been so much talk about the Egyptian economy, the price of the dollar, austerity, what we should expect and so much more. Because it’s hitting home for most of us, we can no longer live in peace away from all this jargon and these technicalities.
We met with an economist to help us make sense of some of the things that are happening and explain some basics we need to know to better navigate. He is a Correspondent Banking Officer in the Financial Institutions department of one of the leading banks in Egypt, with an experience of over ten years. Speaking under the condition of anonymity, he graciously answered our questions.
We keep hearing that the economy is in horrible shape. In simple terms, what does that mean? And how does that affect ordinary citizens?
In very simple terms, Egypt’s resources have greatly decreased in the past few years. One of its major sources of income was money coming in from Egyptians living abroad (aka remittances). For a great number of reasons, including that most of them no longer transfer them through banks but prefer other means, this source has decreased from around $22bn in 2010 to $4bn now. Another source is, of course, tourism. Given the events of 2011 and later instability, this has also been greatly affected. On the other end, the burden on the government has increased. For example, because many unproductive government employees who were forced into early retirement in 2010 as part of a restructuring attempt were brought back by a court order, the salary burden drastically increased; about 70 billion EGP then, and now around 200 billion EGP.
This affects citizens in a very straightforward manner. Salaries haven’t increased to accommodate the spiraling inflation taking place, so costs are continuously increasing. In addition to that, we Egyptians are known for living beyond our means, so our expenses don’t match our incomes at all.
But why this drastic and apparently sudden downfall of the economy?
It is sudden because we’ve been in denial all along. Since 2011, things were predictably affected, but we remained on the defensive and refused to admit the existence of any problem. It’s like a soccer team that plays an entire match on the defensive and eventually runs out of stamina and is ultimately forced to concede defeat.
Also, we have to keep in mind that many of our indicators aren’t accurate. For example, we claimed that tourism was increasing, but didn’t take note that many people who entered using a tourist visa were actually Syrian refugees who ended up staying in the country as citizens.
What has the effect on dollar prices been and why? Should we expect things to get better or worse?
Like I said, in the wake of the Revolution and everything that happened afterwards, it was only natural that everything be affected and the price of the dollar increase. Instead we continued to say that everything was fine even though all sector were against the wall, and kept the dollar at 5.5-6.5 EGP even though it should have reached around 7-8 EGP by 2012. All the measures we are currently taking, like the limits on cash withdrawals abroad, for example, should have been implemented a lot earlier. By acting like nothing was wrong, some people took advantage of the situation and made a lot of money out of it, whereas we only deferred and exacerbated the problem. Simultaneously, the circumstances have been unfavorable to foreign investment. We should also keep in mind that Egypt exported a great deal to countries like Libya, Syria and Yemen. Foreign currency (i.e. dollars) coming in through those countries have virtually stopped given everything that has happened.
With regards to what to expect, it’s not going to get a lot nicer any time soon. I personally think that the most affected stratum in Egypt will be the middle class as it struggles to maintain its current standards. Egypt has also just signed on for a loan from the International Monetary Fund (IMF), the conditions of which stipulate that the price of the dollar reflect the true status of the economy. This means, in my opinion, that it is bound to hit the 10EGP mark before the end of the year.
On a more positive note, we can do things to make things slightly better. The value-added tax (VAT), for example, has just been passed. In order for it to really have an effect and reach the government, we need to spread understanding and awareness of it. People need to understand that receipts and bills are vital so that they ensure, at least, that the money they’re paying is going where it should.
What can the average Egyptian do to make things better, or at least not worse?
Put very simply, they have to stick with what they have and live according to their means. If they can’t afford something, there’s no shame about that. We, as an entire people, need to understand the idea of compromise and forsake some of the trivial things. I’m not saying we should succumb and allow circumstances to drown us, but we need to learn the art of balance, because there’s really nothing else we can do about it. Nobody’s going to do it for us.
What would you recommend to someone who wants to keep up with what’s happening and understand it in simple terms?
There’s an excellent subscription called Enterprise, which emails you a daily digest of the latest news. You could also follow Reuters’ coverage of Egypt.