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Economists sound out reasons behind inflation, poverty

CAIRO: Government economic policy is failing low-income Egyptians, economists Ahmed El-Naggar and Ilhamy Merghany told the fifth conference of the Coordinating Committee for Worker and Union Rights and Freedoms on Friday. Speaking at the Journalists’ Syndicate during a session entitled “Wages and Prices, Merghany listed the reasons he said are responsible for more than half …


CAIRO: Government economic policy is failing low-income Egyptians, economists Ahmed El-Naggar and Ilhamy Merghany told the fifth conference of the Coordinating Committee for Worker and Union Rights and Freedoms on Friday.

Speaking at the Journalists’ Syndicate during a session entitled “Wages and Prices, Merghany listed the reasons he said are responsible for more than half of Egypt’s population living under the poverty line.

Merghany said that the shrinking of the agricultural and manufacturing sectors of the Egyptian economy in favor of service sectors such as telecommunications and real estate activity has made Egypt more dependent on foreign suppliers for the provision of agricultural and manufacturing goods.

Furthermore, the switch from the public to the private sector, and the free market policies which have accompanied this, have resulted in the private sector dictating prices without government intervention while the latter simultaneously offers the private sector tax and customs concessions and freezes food subsidies benefits.

Merghany suggested that this policy has led to out-of-control prices as well as food and building materials monopolies.

“Even in developed countries with free market economies such as that of the United States the government intervenes to prevent monopolies such as these controlling markets, El-Naggar commented.

The national budget deficit, which Merghany says has increased from LE 1.5 billion in 1975 to LE 57.8 billion (2007/2008), has forced the government to borrow heavily from both foreign sources and retirement funds as well as print banknotes without equivalent production.

This, he suggested, has further inflamed prices.

El-Naggar used the example of a civil servant’s wage to illustrate the disparity between real wages and the cost of living after recent inflation increases.

“In 2000, a civil servant earned on average LE 100 per month. The price of chicken at that time was LE 5, which meant that he could buy 20 chickens.

“Assuming that his wage has increased by 10 percent annually in 2008, the civil servant earns LE 214 a month. The price of chicken is currently LE 15, meaning that he can only buy 14 chickens, El-Naggar explained.

Merghany said that low-income Egyptians spend the majority of their income on food, meaning that 80 percent of an average family’s income is spent on goods which are becoming steadily more expensive.

El-Naggar condemned increases in the cost of diesel and petrol, announced this week as part of a package of price-increasing measures.

“While we welcomed some of the measures – such as increased car licensing fees – which we have been calling for some time, there was absolutely no need to increase the price of fuel, El-Naggar said.

“Fuel is a transport commodity, and making it more expensive will lead to an increase in the price of everything and a wave of inflation.

The measures have already resulted in an increase in microbus fares, the principal form of transportation for many Egyptians.

Merghany points out in a paper given to conference attendees that the 25 piaster increase in microbus fares will result in a LE 15 reduction in income.

El-Naggar suggested that the government intended to send a message through the price increases, made just days after it announced a 30 percent increase in the wages of public sector employees.

“This measure is intended to terrorize society by telling us, ‘look what happens if we raise wages by 30 percent – what will happen to inflation if we raise them any further?’

El-Naggar said that alternative means of raising revenue should be adopted.

“Public sector reform, taxation of company profits and control of monopolies should be carried out in order to address the current economic crisis, he explained.

“The state has proved unable to realise justice through the control of prices, he continued.

Topics: Investment

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https://www.dailynewsegypt.com/2008/05/09/economists-sound-out-reasons-behind-inflation-poverty/
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