Development & Aid, Energy, Environment, Global Governance, Headlines, Middle East & North Africa

EGYPT: Giving With One Hand, Taking Back With the Other

Adam Morrow and Khaled Moussa al-Omrani

CAIRO, May 14 2008 (IPS) - In an effort to offset soaring inflation, President Hosni Mubarak last month announced generous salary increases for all public sector employees. The gesture lost its lustre days later, however, when the government drastically raised prices of subsidised fuel.

“The regime played a little trick,” Abdel-Halim Kandil, political commentator and former editor-in-chief of independent weekly al-Karama told IPS. “It announced salary raises among much fanfare and then jacked up gasoline and diesel prices the following week.”

In a pre-Labour Day speech Apr. 30, Mubarak announced 30 percent salary increases – double the usual 15 percent – for all employees of the state. According to official estimates, public sector employees account for roughly 28 percent of the total Egyptian workforce.

Urging the private sector to follow suit, Mubarak said the step was aimed at offsetting rising costs of living for limited income civil servants.

The President went on to note that the government had been instructed to adopt a number of further measures aimed at shielding the public from soaring inflation. These measures include an expansion of social security and subsidy services as well as a general overhaul of the entire subsidy system.

Ever since a major currency devaluation in 2003, Egypt has seen prices of most basic commodities – particularly food – skyrocket. Rising international food prices have further exacerbated the situation in recent months, with the official annual inflation rate hitting 14.4 percent in March.

“The real inflation rate is probably much higher than the government figure,” Hamdi Abdelazim, economist and former head of Cairo’s Sadat Academy told IPS. “For some basic food goods, such as cooking oil, inflation is running at more than 50 percent.”

Inflationary pressures have affected most basic foodstuffs, including traditional staples such as bread and pasta, retail prices for which have tripled over the last six months.

Per capita incomes, meanwhile, have failed to keep pace, and Egypt has recently seen an unprecedented number of strikes and protests against soaring costs of living. The government was discernibly rattled last month when a planned labour strike at a state-owned textiles company turned into a nationwide call for economic relief.

“In the last few years, rising prices and bad government policies have combined to bring down the overall standard of living for most Egyptians,” said Abdelazim. “Meanwhile, the number of people living in poverty has doubled.”

The President’s decision to boost public sector salaries, therefore, received wide acclaim in the state press.

‘The biggest salary increase in the history of Egypt’, read the headline of flagship government daily al-Ahram on May 1. “Protecting the limited-income is the duty of the state,” Mubarak was quoted as saying.

Days later, however, Egyptians were rankled to hear how the government planned to raise the roughly 2.35 billion dollars needed to finance promised pay raises.

On May 5, parliament approved a bill substantially reducing state subsidies on fuel, which had previously accounted for roughly 10 billion dollars of the state subsidies budget. For consumers, the decision translates into a roughly 40 percent increase in the retail price of gasoline and diesel fuel.

“Allowing fuel prices to remain low had only served to compound the inefficient use of fuel at a time when world prices are skyrocketing,” Prime Minister Ahmed Nazif told parliament.

The assembly – dominated by Mubarak’s ruling National Democratic Party – also approved hefty increases on taxes levied on cigarettes, raised vehicle registration fees, and eliminated tax breaks for private schools.

Opposition MPs, led by representatives of the Muslim Brotherhood movement, slammed the decision. In subsequent press statements, opposition parliamentarians claimed they were given less than 24 hours to debate the contents of the bill.

Meanwhile, independent critics warn that increased energy costs will have serious ramifications on a number of vital sectors of the economy.

“Increased fuel prices will lead to higher transportation and manufacturing costs, which will in turn lead to further price jumps,” said Abdelazim. “Even the costs involved in baking bread will be subject to significant increases.”

Many public sector employees say they would have preferred to have taken their usual 15 percent pay raises while leaving fuel prices untouched.

“The President gives with one hand and the government takes back twice as much with the other,” said Ayman, a 32-year-old state employee.

Some observers suspect that Mubarak’s largesse was little more than a political manoeuvre aimed at pre-empting a May 4 protest against rising inflation. Despite the relative success of an earlier general strike on Apr. 6, the May 4 protest saw unexpectedly low levels of public participation.

“The regime managed to thwart the May 4 strike by announcing the salary raises a week earlier,” said Kandil. “But its subsequent decision to raise fuel and other prices only increases the likelihood of popular strikes in the future.”

Sure enough, in the days following the announcement, taxi and microbus drivers countrywide staged demonstrations, demanding the right to raise transportation fares. On May 8, a protest against soaring prices held at the Egyptian Journalists Syndicate in Cairo was quickly cordoned off by state security forces.

“In the absence of any kind of economic relief, Egypt is facing an explosion of popular anger,” said Kandil. “And state security is already gearing up to contain it.”