Government may hike prices to finance social raise, say reports

Sabah Hamamou
3 Min Read

CAIRO: Egypt said it may hike fuel prices to pay for public sector wages less than two weeks after President Hosni Mubarak announced a 10 percent raise in social allowance for all government employees, the local media reported.

“The Ministry of Finance is considering raising the price of gasoline 92 and 95 after the end of the current parliamentary session to compensate for the significant budget deficit caused by the 10 percent social raise, reported Al-Shorouk daily newspaper Saturday citing an undisclosed source.

The prices of cigarettes will also increase, the paper reported.

Egypt usually increases fuel prices following the annual social allowance raises.

On May 5, 2008, Egypt upped prices of high-octane fuel, natural gas prices for energy-intensive industries and cigarettes, as well as fees of vehicle licensing to finance a 30 percent increase of public sector wages.

“The effect of the fuel prices will spill over to other prices, but we don’t know yet how much the increase will be, Simon Kitchen, senior economist at Cairo-based investment bank EFG-Hermes, told Daily News Egypt in a phone interview.

Many expect the increase to reflect on inflation, which fell to 11.7 percent in April from 12.1 in March. This led the Central Bank of Egypt’s Monetary Policy Committee (MPC) to cut interest rates.

“When the MPC considers cutting interest rates, it considers inflation and other elements, for instance, growth rate, wages and other things, added Kitchen.

Rania Al-Mashat, the MPC’s division chief, refused to comment on the news or whether this will affect the MPC’s decision on further cut interest rates.

Egypt’s inflation rate has been declining recently, which prompted three interest rate cuts in the last four months.

“The central bank will probably hold [on cutting more interest rates] because monthly inflationary pressures are increasing, Reham ElDesoki, a senior economist at Cairo-based investment bank Beltone Financial told Bloomberg last month.

Surprisingly, some in Egypt have called on the government to stop the annual social raises because they are usually followed by price increases.

Several groups were created to that tune on the social networking website Facebook, one of which has around 200 members and says “Egypt is the mother of the world, but they give us the social allowance raise with one hand, and take it back with the other.

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