The Ministry of Supply has formed a committee to decide the percentage increase in the value of subsidised foods distributed to ration cardholders to compensate them for the decline in the value of the Egyptian pound. This is in accordance with what President Abdel-Fattah Al-Sisi said in his speech on Sunday, when he promised not to “overload” Egyptians with inflationary pressures resulting from the fluctuation in the value of the pound against the dollar. The Central Bank of Egypt (CBE) devalued the pound by 14 per cent last month to reach LE8.87 against the dollar. The move failed to limit the pounds fall in value in the parallel market, however, reaching LE11.4 against the dollar earlier this week. As Egypt is a net importer of food, the decline in the value of the local currency pushes up the prices of main food staples. Figures compiled by the Central Agency for Public Mobilisation and Statistics (CAPMAS) reveal that the increase has fed a hike in the prices of rice, meat and pharmaceuticals by 10.7 per cent, two per cent and 7.7 per cent, respectively. Some moves in recent months have reduced the impact of the devaluation, such as introducing subsidised commodities in state-owned supermarkets and distributing them using army trucks. Meanwhile, annual inflation declined in March to 9.1 per cent. Most observers believe that double-digit inflation can be expected for the rest of the year. “Our sense is that annual inflation is likely to rise in the coming months. Indeed, on past form at least every 10 per cent drop in the value of the pound against the dollar tends to add 1.5 to two per cent to inflation,” said a Capital Economics note. While the committee was supposed to convene on Wednesday to decide the percentage increase, Khaled Hanafi, the minister of supply, told a prime-time talk show on Sunday evening that the increase will reach 15 per cent. This translates into an additional LE3 per individual. The increase will be introduced starting June. According to the current system, adopted in 2014, each individual in Egypt can buy a wide range of commodities at subsidised prices, with the state bearing LE15 of the cost. Holders of smart ration cards for bread can also get commodities in exchange for unused bread points. Before the increase, food subsidies in the 2016-2017 budget were planned to be LE42 billion. The number of ration cards distributed amounts to 18.7 million, benefiting around 67 million citizens. The increase in subsidies spending won't affect the budget deficit, according to Hanafi. He explained that the decrease in the cost of subsidies, due to the exclusion of many beneficiaries who have become ineligible, would make up for the hike to cover inflationary pressures. Starting this month, around nine million Egyptians will be excluded from the food subsidies system. This includes the deceased, those who have been abroad for a long time, and those holding multiple ration cards on the same national ID. Al-Sisi stressed in his speech that he has asked the Armed Forces to provide two million commodities to limited-income categories in the country's different governorates. The speech came a day before planned protests against Al-Sisi's decision to transfer the ownership of two Red Sea islands to Saudi Arabia, a move that has stirred a wave of criticism against the government. Holders of ration cards have recently suffered from a scarcity of certain items like cooking oil due to the shortage of dollars needed to import these staples. The CBE tried to slow the rising inflation when it hiked interest rates twice in December and March. Such measures are not expected to be repeated at the scheduled Thursday meeting of the CBE's monetary policy committee, due to the decline in annual inflation rates.
