'Darkest days': Egypt's economic crisis hits joy of Ramadan

CAIRO - El-Abdeen market, in downtown Cairo is brimming with excitement. Everywhere, the "fanuss" - traditional lanterns lit during Ramadan - have come out. At the same time the flowers of the flamboyant trees have bloomed. The stalls are as full as the stomachs are empty.

The whole country has entered the holy month: 30 days of festive fasting and reflection but also of great tables of food for family and friends.

It's getting very hard for us, we're trying to live with what we have. Before, I used to buy 2kg of tomatoes. Now I can't afford it because all the bills have gone up

- Hamida Hussein, housewife

Yet, in front of Ahmed Safwat's butcher's shop, Hamida Hussein, a housewife and mother of three, doesn't know how she can present dishes on the table every evening to replenish her family after their long day of fasting.

"It's getting very hard for us," she says, "we're trying to live with what we have. Before, I used to buy 2kg of tomatoes. Now I can't afford it any more because all the bills have gone up.

"I buy only one. During this month, it's even worse because prices have gone up even more." The festive atmosphere may be flooding the streets – but in the market, Egypt's shoppers are not in the mood to spend money freely.

The crisis that ate itself

In April, the annual inflation rate in Egypt grazed 33 percent, overtaking 44 percent for edible goods.

Egypt has seen unprecedented price increases since the authorities allowed the Egyptian pound to float last November, all part of a reform plan linked to a $12bn IMF loan.

Consequently, Egyptians are facing one of the most serious economic crises in their country's history.

"The current crisis is quite dire," says Amr Adly, economist and visiting scholar at Carnegie Middle East Center. "The inflation rates, including the official ones, are the highest since the late 1980s and the recession has extended for five or six years now. This is the worst economic crisis to face this generation of Egyptians, I can tell."

The Egyptian pound, which used to be traded at the official rate of 8.8 per dollar, has weakened. Now the greenback is traded at more than 18 Egyptian pounds.

The impact has been severe. It's a vicious circle – or perhaps an ouroboros, an ancient Egyptian symbol representing a dragon eating its own tail.

During holy month, consumer spending peaks as everyone is buoyed along by their enthusiasm for Ramadan. Sellers increase their prices, even on local produce because, as they would put it, it's business. But high prices have now become a matter of survival for traders, with the cost passed on to shoppers.

According to figures from the Egyptian Central Bank, the price of fresh vegetables and fruits has increased by 7.5 percent and 5.5 percent respectively during the last month. Red meat has increased by almost 4 percent, fish and seafood by 8 percent, along with milk, cheese and other goods.

"We are facing the darkest days, as we've never seen before," says an old woman, seated at the corner of the street with her wares. "We can't sell anything. These potatoes here, I've been trying to get rid of them for five days. I can't sell them and I can't feed my children."

Further inside the market, Mahmoud Hazem, a chicken seller, says his revenue has fallen too. "I don't sell a quarter of what I used to in the past. Before, I could sell 10 chickens in a day. Now, it's barely three. But they become more expensive because of inflation, especially during Ramadan."

We are facing the darkest days, as we've never seen before. We can't sell anything. These potatoes here, I've been trying to get rid of them for five days, I can't sell them and I can't feed my children

- Street seller

Ahmed Salah, 25, explains that his mother used to store fruit in the  months leading up to Ramadan to use as drinks. No longer.

"We used to have a freezer, only filled with fruits," he says. "One drawer for mangos, one drawer for guavas and so on. Now, it is less expensive to buy little bags of industrial fruit juice instead. It's definitely not as good as fresh juice, but with one bag of concentrate juice, you can make five or six glasses. With a kilo of mangos, it's two, three maximum. We can't afford it any more."

Nuts are now a luxury

During the last few months, many Egyptians have had to change their eating habits as they fight crippling food prices.

Ahmad Safwat, a butcher, says: "Adults are willing to give up certain types of foods, like animal proteins, because we have to feed our children first. Good proteins is important especially for children's growth. If they do not eat it, they do not grow well and might fall ill.

"Chicken has become the alternative for fish and meat, but it's getting too expensive too. He explains that, before the pound was floated, meat used to be EGP 48 ($2.65) per kilo but is now EGP 68 ($3.67) per kilo. Chicken was EGP 28 ($1.55); now it's EGP 36 ($1.99).

A mother complains that even frozen chicken has increased during the past six months from  EGP 28 to EGP 40 for a pack weighing 1.3kg.

"Everything has become way too expensive, we can't buy it anymore", explains an old man wandering in the alleys of the market. This year, he will not be able to buy dried fruits and nuts, one of Ramadan's special little pleasures

Adults are willing to give up certain types of foods, like animal proteins, because we have to feed our children first

- Ahmad Safwat, butcher

"Cashew nuts are the worst," he says. This year, 250g of unroasted nuts are sold for EGP 98, almost EGP 400 ($22) per kilogram. "I have to be careful with every single pound I spend," he says.

Nuts have become a luxury, but all prices have jumped to a worrying extent. Rice has doubled, forcing people to eat bread instead. Some bakeries believe that they are now selling double the amount.

It is a phenomenon that highlights how Egyptians are feeling the pain from reforms. It shows as well how the government's subsidised bread programme has offered vital protection against hunger and prevented a social explosion.

At the end of March for instance, thousands of protestors blocked roads and crowded around state-affiliated bakeries in many cities, protesting a government decision to reduce the quantity of subsidised bread each family could purchase. They have become known as "bread riots".

'Give us a breath of fresh air'

Egypt is a net importer of food, as Adly explains, with provisions and fuel making up more than one-fifth of the country's import bill.

Food subsidies cover a few goods, he says. A scoring system also means consumers who do not use their points for bread can then use their allocation for a broader variety of goods.

But, as Adly explains, this too has hit problems. "They are administrative, but also economic, because many of the imported food stuffs can no longer be subsidised without burdening the government with huge costs in a time of austerity."

The government has also introduced value added tax (VAT), which is applied to fuel subsidies - reforms that have been postponed for decades, for fear that they would trigger social upset.

That's not all. From 1 July – the start of the new fiscal year in Egypt – the country will bear another price rise due to the demands of the IMF.

According to the terms of the agreement, Egypt needs to cut its energy subsidies from 1.75 percent of gross domestic product to less than 0.5 percent by 1 July to access the second chunk of the loan.

About 27 million of Egypt's 93 million population live below the poverty line.

President Abdel Fattah al-Sisi, to deflate the anger, has pledged economic measures including tax breaks during the holy month. In an interview published in the state newspaper al-Ahram, he said the government would increase subsidised food in the coming weeks to "benefit middle class and low-income groups".

"Yes, he said he would do that," says Hamida Hussein. "We are out of breath. The government has to give us a breath of fresh air. It's Ramadan anyway, it's not only about food and drinks, so we'll try to enjoy it. It will be nice anyway," she whispers.

Stagflation prolongs problems 

Tarek Amer, the governor of the Central Bank of Egypt, has said that "the financial crisis in Egypt is over", arguing  that "Gross domestic product (GDP) in 2017 has significantly jumped compared to 2016 and the prices will fall in 2018."

He promised prices will drop and get back to their normal rate before the flotation in a couple of weeks.

But Amr Adly disagrees. "When the government adopted the IMF package seven months ago, the Egyptian economy was suffering from a mix of low growth and high inflation, ie stagflation. This situation has not changed."

Adly says that if anything, stagflation has deepened as inflation increased considerably after the pound was floated. But growth rates did not rise as the manufacturing, agricultural and service industries depend on imports for their raw materials and hence witnessed an increase in costs. "The crisis is thus not over."

He forecasts that conditions will worsen in the short term before they improve - if at all - during the next two or three years.

"Macroeconomic indicators are showing signs of stabilisation, such as the exchange rate, but inflation is high and public finances are not yet under control," he says.

Much will depend factors including the global economy, the security situation in Egypt and the wider region, and the future of oil prices, Adly explains.

Egyptian people don't ask for charity, even during Ramadan – they just want to be able to afford the basic necessities. Their inability to do so only makes the pain felt more keenly.

"If we can get some help, it would be great," says Hamida Hussein. "But if not, we'll manage anyway. I just hope I'll be able to buy a few presents for my kids for Eid."