Photographer: Aris Messinis/AFP via Getty Images

It’s Cheap Cheese or ‘Hell’ as Egypt Awaits IMF Lifeline

  • IMF says Egypt must still cut subsidies, address exchange rate
  • Officials worried reforms could fuel unrest among poor

When talk-show host Amr Adib went on Egyptian TV to beg food companies to cut prices, he sounded an apocalyptic note. “We must all stand together,” Adib said. Otherwise, society falls apart, “hell breaks loose, the fire will consume us all.”

Egypt’s government keeps media on a tight leash, so the message probably had official backing. And sure enough, two days later, a group of foodmakers announced price cuts on air. The problem for President Abdel-Fattah El-Sisi is that he’s under pressure to take major economic decisions that will have exactly the opposite effect, pushing the cost of living sharply higher.

The International Monetary Fund has spelled out what Egypt needs to do to finalize a $12 billion deal: act on the exchange rate and subsidies -- code words, economists and investors agree, for devaluing the pound and removing caps on fuel prices. El-Sisi’s government presents the IMF loan as proof that Egypt’s open for business again, after six years of turmoil. But anything that adds to already-high inflation risks stirring yet more unrest.

“There is a general dissatisfaction with the economic performance of the government, a lot of promises have been made without bearing fruit,” said Omar El-Shenety, managing director at Cairo-based investment bank Multiples Group. “The spike in inflation is squeezing people like never before.”

Dangerous Grievances

Egypt’s inflation rate has been 14 percent or higher since June, levels unseen this decade. It’s partly driven by a collapsing currency: The dollar trades on the black market at a 75 percent premium to the official rate. El-Shenety said that the IMF-backed measures could push inflation above 20 percent.

And he said that possibility may be spreading doubt among key actors in the Egyptian regime about the wisdom of signing up with the IMF. “The security bodies of the state are probably worried that the economic grievances will merge with the political grievances of certain groups and result in chaos,” El-Shenety said.

El-Sisi hardly needs reminding how dangerous those grievances can be, and how real is the risk of chaos. The former army chief came to power in 2013 after massive protests against his Islamist predecessor. Just two years before that, Egyptians toppled the longtime ruler Hosni Mubarak, gathering in their millions in streets and squares across the nation to demand liberty, justice -- and bread.

‘Bottleneck’

“We’re on our way out of the bottleneck,” El-Sisi said in an interview with the state-run Al-Ahram newspaper on Saturday. “Tough decisions have to be taken and we have to endure them and be patient, and God-willing, the results will be great.”

The president has repeatedly instructed officials to ensure that the poorest Egyptians aren’t affected by efforts to trim budget deficits. Authorities have been stockpiling key commodities, including fuel and sugar, to safeguard against possible price gouging. But discontent remains widespread.

“We are close to begging. our income isn’t enough to complete the month and we have to borrow to make ends meet,” said housewife Fatma Mohamed, 50, outside a government-owned discount supermarket. She dismissed the effectiveness of efforts like Adib’s broadcast demand for cheaper food: “These campaigns are a lie,” she said. “Prices keep going up and we don’t know what to do.”

But if the IMF-backed measures carry risks, so does delaying them.

Black Market

The pound has been weakening on the black market at an accelerated pace in the past week, partly on expectations of an imminent devaluation. A rare public spat with Saudi Arabia, which has been El-Sisi’s chief financier, raised doubts about the government’s ability to secure cash from other sources that the IMF is insisting on as a complement to its own lending.

That’s been achieved, officials said Thursday: Egypt has the $6 billion that the fund required, with a third of it coming from the Saudis. The money is needed to bolster foreign reserves, which are down by more than 40 percent from end-2010 levels.

Egypt is “getting closer” to concluding the IMF deal, Prime Minister Sherif Ismail told Bloomberg on Thursday, without giving details. It’s not there yet. Initial approval came in August but this month the fund’s chief, Christine Lagarde, pointedly tied final signoff to the exchange rate and subsidy moves.

‘Difficult Decision’

“It’s no doubt a difficult decision to make,” said Jean-Paul Pigat, senior economist at Dubai-based Emirates NBD PJSC. “But on balance, the alternative of not acting is worse.”

The expected increase in fuel prices is between 20 percent and 25 percent, the Al Borsa newspaper reported Sunday, citing an unidentified government official who also said authorities were concerned about the inflationary impact of reducing fuel subsidies.

Doing so may add to public dissatisfaction with a government that has already imposed a new value-added tax and raised electricity prices by almost 50 percent. That’s where the push to lower food prices comes in.

The country’s biggest listed dairy and juice producer, Juhayna Food Industries, cited “price surges that Egyptians suffer from” as its motive for responding to Adib’s call with a 20 percent discount on one of its milk products. Cheese-maker Arabian Food Industries Co., known as Domty, gave the same reason for a similar cut on feta cheese.

The companies are trying to “evade public pressure by cutting prices on certain basic products that don’t have a big impact on them,” said Radwa El-Swaify, head of research at Pharos Holding. “They can’t afford to cut prices across their portfolios.” So as a palliative, the food-price campaign may have little impact.

Even if El-Sisi and Lagarde see things differently, the IMF program will probably get done. That’s because, with a population of more than 90 million, the country can’t be allowed to collapse into chaos, according to Raza Agha, chief economist for the Middle East and Africa at VTB Capital in London.

“Nobody wants Egypt to fail,” he said.

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