Rising wages: Sisi’s electoral propaganda proposes no solution to inflation

On Thursday, March 2, Abdel-Fattah El-Sisi announced measures favouring employees. This decision was decided because of the high inflation wave the country is witnessing against the backdrop of the pound’s devaluation several times, at the heart of an economic crisis mainly caused by his government’s measures.

The announced measures included five decisions. The first is to prepare a package to improve workers’ income in the state’s administrative apparatus and special cadres, starting from the first of next April, as the employee’s income increases by one thousand pounds per month. The second is to increase the minimum for workers in the state, for the sixth degree and its equivalent, as it will be 3500 pounds per month, while the qualitative third degree and its equivalent will be 5 thousand pounds per month. For master’s holders who work in the state, its value will be 6 thousand pounds per month; for PhD holders, it will be 7 thousand pounds per month. He also announced a third measure to increase the pensions disbursed to their owners and their beneficiaries to 15 per cent starting from the exact date. He told to raise the tax exemption limit on annual income from 24,000 pounds to a value of 30,000 pounds annually, increasing the financial categories granted to the beneficiaries of the Takaful and Karama Program by 25 per cent per month, starting from the same date.

Decisional crisis

Sisi’s decision did not include the private sector; the latter is linked to the National Council for Wages meeting. Although it is expected to raise wages from 2,700 pounds, which is the current minimum, to 3,000 pounds, in addition to whether or not the National Council will approve it, implementing the new decisions will face intransigence from the Egyptian private sector. This is due to two reasons. The first is that the Egyptian economy is very dependent on the informal economy, which amounts to 55 per cent of the economy. The government must find a way to reach this informal economy to collect its taxes.

The second reason is complex: the official does not register all of its employees in social insurance. Even those noted are manipulated by using allowances and insurance to evade the increase. The increase that is supposed to be applied to the basic salary is not applied, as the total compensation that the employee receives is calculated between the basic wage and the incentives. The implementation of the minimum wage in the government sector is facing a crisis. The same manipulation occurs by merging incentives, benefits and rewards with basic salaries to reach the minimum. But is the increase sufficient and the decision favoring if the application has already been implemented?

Are there enough decisions?

The government usually links increases in the minimum wage with waves of inflation, but it does not care about raising the salary rate beyond the inflation rate. This is why the citizen doesn’t feel the “positive impact” of that increase, and it doesn’t even compensate for the decrease in the value of his salary in the first place. The rate of increase ranges from 15 per cent of workers in the state administrative apparatus. If applied, the new dilemma will be comparing the growth rate and inflation.. Afromthe inflation rate in commodity prices . However,The rate of inflation in commodity prices, according to the latest data of the Central Bank of Egypt, is 32.7 percent, although this rate does not accurately reflect the reality, as Egyptian citizens see that the inflation rate reaches 100 per cent. However, even if we deal with the official figure, the increase is, at best, half of the inflation rate, meaning that it does not bring us to what was before the rise in inflation. Likewise, if the rate of increase is calculated following the decrease in the labour price, which lost 50 per cent of its value, then the value of the growth does not reach the level of the inflationary increase associated mainly with the exchange rate and the shortage of foreign exchange.

Therefore, the waves of inflation are unrelated to the total demand for goods and services. Consequently, the levels of economic activity in the sectors mainly stayed the same but decreased. In the latest census of consumer behaviour in previous waves of inflation in 2022, the consumption of Egyptians decreased, as 73.9% of households reduced their food consumption, which has worsened with the recent rise in inflation rates. Therefore, an increase in cash income, although it will slightly improve consumption rates, will lead to a slight increase in demand. As a result, commodity prices tend to rise further, directly contributing to raising inflation rates, which creates a vicious cycle.

What does the Egyptian economy need?

The improvement of the economy is usually a result of increased productivity. Since the crisis in Egypt is mainly a foreign exchange crisis due to a lack of hot money, the compensation is primarily the improvement of the economy by increasing what the country imports abroad to obtain foreign exchange. However, the government does not want to change its politics, whether in ways of spending that are receding in non-return national projects, as it instead tends to expand recently, which is against the terms dealt with by the International Monetary Fund for lending to Egypt 3 new billions of dollars.

The Egyptian economy needs approximately $17 billion to reduce the financing gap, so the real need is for a government plan that works to increase investments in a way that helps increase foreign exchange rates entering Egypt through increasing exports, which contributes to reducing that gap and lowering debt rates, Then, later, work on linking wages to work, as we find the private sector making huge profits from the Egyptian market without a real return on the productive worker in the first place, which results from the government’s lack of desire to control the private sector, as it uses cheap labour. But the government, in addition to its desire to satisfy the private sector, and direct its expenditures in a way that helps it politically, has no desire to improve Egyptians’ lives!