As the end of Ramadan approaches across the Muslim world, Egypt continues to experience record inflation rates, manifested in soaring prices of consumer goods causing food prices to soar.

According to the Central Agency for Public Mobilization and Statistics (CAPMAS), March this year saw an inflation rate of 12.1%, compared to 4.8% last year for the same period. month. Food prices rose 4.5%, with the most notable category of inflation being bread and cereals, which rose 11%.

In February, inflation rates in rural areas reached 10%, while inflation in urban areas rose to just over 8%, the highest levels recorded for 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 collided with several regulatory measures by the Egyptian government which, 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 about 17% against the dollar, causing the exchange rate to drop to 17.5. EGP for 1 USD, after being pegged to EGP. 15.7 to 1 USD for six years despite liberalizing the exchange rate under its 2016 structural adjustment program with the International Monetary Fund (IMF).

Deregulation of the exchange rate by the CBE will likely lead to a significant increase in inflation rates, which are expected to increase dramaticallyaccording to several sources.

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

If the new program included a loan, it would be Egypt’s third since 2016, when it signed a loan. widely unpopular accompanied $12 billion three-year structural adjustment agreement, then considered the largest in the region, and implemented an accompanying austerity program that raised poverty rates by almost five percentage points percentage between 2015 and 2018, according to mada masr.

In 2020, Egypt took out an additional IMF loan worth $5.4 billion and received $2.8 billion in social drawing rights (SDRs) under the pandemic stimulus program of the IMF.

Global and local factors

These decisions were made in response to various overlapping emergencies that created fundamental uncertainty about what lay ahead on Egypt’s socio-economic horizon.

Since 2016, a number of indicators show that Egypt has entered a new era, in which it has become more attached to the global financial system and the volatility that comes with it.

Rising global inflation, Egypt’s position in global value chains, massive price hikes caused by the pandemic, unequal trade relations, coupled with a shortage of Egypt’s foreign currency reserves due to Ongoing borrowing has caused a large outflow of foreign capital from global markets in the South, including Egypt. bond market.

This interplay of complex factors was exacerbated by Russia’s invasion of Ukraine, which led to other problems such as huge increases in oil prices, a sharp decline in tourism revenues and a spike in the price of corn.

The war has increased the stress already exerted by the pandemic on supply chains and has pushed up the prices of key commodities in the Egyptian government’s imports, mainly wheat, cereals and energy, which constitutes a massive threat to the country’s food security, as Egypt is the largest importer in the world. wheat.

The devaluation of the pound has added another level to the surge in inflation, and Egypt’s dependence on imports makes it particularly susceptible to price shocks. In a country that depends on the import of commodities, inflation is likely to result, as almost all food and energy products are pegged to the price of the dollar.

Indeed, as the value of the pound fell by 17%, the cost of certain products Pink by 50 to 200 percent, threatening to push more families into poverty as they struggle to afford basic necessities.

“As the value of the pound has fallen by 17%, the cost of some products has risen by 50-200%, threatening to push more families into poverty”

Food safety

At the beginning of April, the Cabinet announced that the Egyptian wheat stock for the bread subsidy system would most likely run out in 2.5 months.

If the government does not intervene to regulate the local market, any shortage or price increase will lead to dire consequences, especially during Ramadan, analysts say.

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

The ministry in charge of supply said the decision would be in effect until the end of the month, saying there is normally a decrease in demand for bread during Ramadan, when the majority of Egyptians fast.

However, bakery owners have said otherwise, saying this Ramadan has so far seen an unusual increase in bread consumption, which could be the result of high price inflation driving up the price of other foodstuffs.

The decision to ration flour was undermined by a lack of centralization, with bakery owners saying it was implemented inconsistently or even reversed in areas where citizens gathered outside bakeries to complain about the amount of rationed bread they were able to buy. A bakery owner declared that bakeries are now bearing the brunt of people’s anger over cut bread rations.

Reversal of austerity policies

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

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

Most notably, the Egyptian government has also taken the decision to intervene to fix the price of unsubsidized bread, arguably the country’s most vital food item, in public and private bakeries.

According to decreebakeries must adhere to the new set of prices for a period of three months or until further notice, and those who breach the new regulatory frameworks face fines from the Consumer Protection Agency.

The decision came after the price of unsubsidized bread rose by around 50% per loaf as imports of wheat from Russia and Ukraine were halted.

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

These measures are in direct contradiction to Egypt’s austerity measures aimed at cutting spending and reducing government intervention in the market since the IMF’s 2016 austerity program and Egypt’s own economic program. Egypt of 2014.

However, despite these efforts, Oxford Economics predicts that consumer prices will continue to soar in the coming month, which will weigh heavily on low-income Egyptians.

Bread riots?

It is unclear whether Egypt will see structural changes to its food dependence in the coming period, or whether it can continue to price subsidized bread for much longer, and how this will be reflected in its future relationship with the IMF. .

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

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

While Egypt is now much more integrated into the global financial system and susceptible to its whims, historically food prices have often led to uprisings or at least intense political and social reactions, especially bread given its historical importance as a social contract between ruler and ruled.

In 1984, as in Egypt, Tunisia experienced its own bread uprisings, also spurred by an IMF austerity program, causing the price of bread to soar. While the uprising was put down, the incident weakened then-president Habib Bourghiba enough to have him deposed 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 2008 global financial crisis, the price of bread and basic consumer goods was affected around the world, particularly in countries that were pegged to the dollar, including Egypt and Tunisia, causing huge increases in food prices. 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