On February 7, 2024, Egyptian President Abdel Fattah al-Sisi announced a 50% increase in the minimum wage and the government salaries, effective from March. The decision was made to “lighten the living burdens on citizens” , who have been suffering from high inflation, currency devaluation, and supply chain disruptions.
The move came amid speculations of an imminent deal with the International Monetary Fund (IMF), which has been in talks with Egypt for a potential bailout package of $10 billion. One of the expected conditions of the deal is a currency devaluation, which would match the black market rate of the Egyptian pound, which has plunged by more than half to the US dollar over the past year.
Egypt’s economy has been hit hard by the global crisis triggered by the 2022 Russian invasion of Ukraine, which disrupted the trade and supply of wheat, a staple food for Egyptians. Egypt used to import most of its grain from Russia and Ukraine, but has since faced shortages and price hikes. In August 2023, annual inflation reached a record high of 39.7% , eroding the purchasing power and living standards of millions of Egyptians.
The impact and the challenges of the decision
The decision to raise the minimum wage and the government salaries is expected to benefit about 30 million Egyptians, who work in the public and private sectors, as well as the pensioners and the low-income earners. The minimum wage will increase from 4,000 to 6,000 Egyptian pounds ($129 to $194) per month, while the government salaries will increase by a minimum of 1,000 to 1,200 Egyptian pounds ($32 to $39) per month. The income tax exemptions will also increase by 33% for both sectors.
However, the decision also poses some challenges and risks for the Egyptian economy, such as:
- Increasing the budget deficit and the public debt, which are already high and unsustainable. Egypt’s budget deficit is projected to reach 9.8% of GDP in the fiscal year 2023/2024, while its public debt is estimated to exceed 100% of GDP .
- Fueling inflation and currency depreciation, which could undermine the positive effects of the wage hike and hurt the competitiveness and exports of the Egyptian economy. The IMF has warned that Egypt needs to implement structural reforms and fiscal consolidation to achieve macroeconomic stability and growth .
- Creating social and political unrest, as the wage hike could widen the income gap and the resentment between the public and private sectors, and between the formal and informal sectors. The decision could also spark protests and demands from other segments of the society, such as the students, the farmers, and the unemployed.
The opportunities and the prospects of the decision
The decision to raise the minimum wage and the government salaries is also an opportunity and a prospect for the Egyptian economy, such as:
- Boosting the domestic demand and the consumption, which could stimulate the economic activity and the recovery. The decision could also improve the social welfare and the human development of the Egyptian people, who have been suffering from poverty, malnutrition, and poor health and education services.
- Enhancing the political legitimacy and the popularity of President Sisi, who was reelected for a third term in December 2023, amid allegations of fraud and repression. The decision could also improve the security and the stability of the country, which has been facing threats from terrorism, insurgency, and regional conflicts.
- Attracting foreign investment and aid, which could support the economic development and the diversification of the Egyptian economy. The decision could also facilitate the negotiations and the cooperation with the IMF and other international partners, who have expressed their willingness and readiness to help Egypt overcome its economic challenges.
