Economy of Egypt - Response To The Global Financial Crisis

Response To The Global Financial Crisis

The challenges of the global food crisis followed by challenges of the global financial crisis made room for more integrated policy reforms. Considering the massive economic measures that have been taken over the past 12 months or so, Egyptian economic policymakers score high based on the inside lag, i.e. the lapse of time between the moment that the shock began to affect the economy and the moment that economic (monetary and fiscal) policy as well as the regulatory policy are altered and put into effect in response to the shock to various markets: goods market (real GDP), the labor market (unemployment rate), money market (interest rate and inflation), and the financial (stock and bond) market. Indeed, moderate financial panic occurred driven—at least partially—by the fear that other investors are about to panic and sell. There were falls in stock and bond market prices, and rises in nominal interest rates.

Egypt has a population of about 83 million, with the population concentrated within a region 20 miles (32 km) on either side of the Nile River. The majority of the population is employed in the services sector, followed by agriculture and industrial production. Approximately one-third of Egyptian labour is engaged directly in farming, and many others work in the processing or trading of agricultural products.

Unemployment rate increased from 10.3% in FY2004 to 11.2% in 2005. The average rate of growth of employment in the publicly owned enterprises sector was -2% per year between FY1998 and FY2005 as a result of aggressive privatization program. On the other hand, private sector employment grew at an average rate of 3% over that period. In addition, the government sector employment grew by almost double the rate of the private sector over the same period.

In general, the average weekly wage in the private sector is, in many instances, higher than that of the public sector. In some other instances, e.g. whole sale and retail trades, the weekly wage is lower by half of that in the public sector.

As a result of the weakness role of the Ministry of Manpower and Trade Unions to create a balance between the rights of workers and the interests of owners of companies in the private sector, privatization has led to worsening employment problems and deterioration in their working environment and health, and many workers have recently resorted to strike and picketing.

In an effort to quell discontent over rising food prices, Egypt offered government and public sector workers a pay rise of up to 30%, and urged the private sector to keep up with the pay rise. The offer came on the May day speech delivered by President Mubarak to the Egyptian General Federation of Trade Unions.

"We must go in dealing with the current global (food) crisis, on two basic tracks (1) we must strengthen the food security of our low-income people, (2) we must achieve a balance between wages and prices." President Mubarak said.

The pay rise originally proposed in the government budget ranged between 15%–20%, but the decision to double it was given on heightened worries that widespread anger over prices could lead to a social explosion. The pay rise is initiated immediately, rather than waiting for the start of the new fiscal year on 1 July 2008 and is to be financed from real resources.

While the headline CPI inflation rate was 15.8% (17.6% in rural areas, 14.4% in urban areas) in March 2008, the overall food price inflation rate was 23.7% (26.9% in rural areas, 20.5% in urban areas). Moreover, in April 2008 in urban areas, the headline CPI inflation rate reached 16.4% while food price inflation rate was 22.0%. This underlines the statement in Nawar (2008) that "the inflation rate as measured by the headline CPI does not concern the poor and low-income people, who are the majority of people in rural and urban Egypt, since they spend most of their income on food." Approximately 55 million poor and low-income citizens, representing about 75% of the population, are currently enrolled in food ration cards.

In April 2009 it was reported that Egypt feared the return of 500,000 Egyptian laborers working in the Gulf states.