x Abu Dhabi, UAESaturday 22 July 2017

A pay raise will not put an end to Egypt's crisis

By offering higher salaries, Cairo has put the cart before the horse. Economic stability will follow political, not the other way around.

Against a backdrop of renewed protests around Tahrir Square yesterday, Cairo announced a raft of measures, both economic and political, to stem discontent. The political concessions seemed to have little effect on turnout in the streets; the economic sops, however, could do more harm than good.

Not just in Egypt, but also in Tunisia, Algeria and Yemen, protesters have turned out at least in part because of economic grievances. Unemployment, corruption and rising prices are causing pain across the region. This is a problem that is not going away: one third of the population of the Middle East and North Africa is under the age of 15 and those under the age of 30 make up more than 40 per cent of the region's unemployed.

These governments have lagged in formulating policies of job creation and poverty alleviation, but the old giveaways of salary rises and food subsidies may be too little, too late.

Worse, Cairo's promise on Monday to raise salaries for six million government workers by 15 per cent will aggravate an economic situation that is already suffering as a result of unrest. The Egyptian pound reached a six-year low before the central bank stepped in yesterday. With a currency under threat coupled with government giveaways, rising inflation could easily cause greater economic pain down the road.

Continued food subsidies are probably an inevitability. They constitute a major expense for states and distort the market, but Cairo and other governments still have the responsibility to feed people regardless of political turmoil. Egypt has continued its subsidies programme, while Jordan, Libya, Algeria and Syria have taken similar steps to keep food costs under control.

There are pressing economic priorities in Egypt: halt the flight of foreign capital, open the banks and restore some stability to the markets. But by offering higher salaries, even for six million people, Cairo has put the cart before the horse. Economic stability will follow political, not the other way around.

Even in the doubtful eventuality that state workers are appeased by this wage hike, the government is offering something that the country cannot afford. The people's economic situation is not going to be improved by giveaways.