Days after a new constitution was drafted, to be voted on by Egyptians in January, a new stimulus package was unveiled by the finance minister, also to come into effect at the start of the new year. The stimulus is the second by the interim authorities since the Islamist president Mohammed Morsi was toppled by the army in July. Announcing the package, the finance minister said the money that had been pledged by Arab Gulf states – a total of $12bn (Dh44bn), mainly by Saudi Arabia and the UAE – would be included in this second stimulus package.
The timing of the package can certainly be read as political, but the Egyptian authorities know they are on a tight timetable. The political changes are rolling: if the draft constitution is agreed in mid-January, the stage will be set for elections later in the year. What is not happening swiftly enough is growth in the economy – and Egypt’s leaders know that it is economics that will decide whether Egyptians back them or not.
The economy in the Arab world’s largest country is parlous, with growth down to 2 per cent three years after the revolution. Yet it is concerning that part of the stimulus package will be used to finance a minimum wage for public sector employees. The public sector accounts for around a third of the total labour market. In 2012, a minimum wage of $100 was set in the public sector; the rise in 2014 will take this to around $174. A minimum wage is enormously popular in the country and has been debated for years – there is considerable public pressure for a minimum wage to be expanded to the private sector.
Yet Egypt can ill-afford such a rise. And the biggest problem facing ordinary Egyptians is inflation, which has been eroding their purchasing power for years. Last month, inflation reached its highest annual rate for four years. The interim government needs measures to stabilise prices – it is that which will bring about a result that will be felt in the pockets of ordinary Egyptians. Indeed, Egypt needs to be moving away from subsidies.
At the same time, a specific focus on encouraging small and micro sized businesses will lead to an increase in employment. That is what the Khalifa Fund’s agreement with Egypt’s Social Fund for Development, signed two weeks ago in Dubai, is designed to do. Encouraging small business, especially in poorer areas of Egypt, can help some of the most marginalised.
Financing from the Gulf can help stimulate Egypt’s economy. But while subsidies might work in small, rich economies in the Gulf, they cannot supply the necessary stimulus in a country like Egypt.
