Trickle-Down Turmoil: The Indirect Effects of Egypt’s Currency Crisis

Turmoil Down: The Indirect Effects of Egypt’s Currency Crisis

A street vendor sells bananas near a market in Cairo, December 30, 2014. REUTERS/Mohamed Abd El Ghany

The holy month of Ramadan is known to be a time of giving. Throughout their days, those who are able will share what they can spare with those who are less fortunate than themselves in the form of donations.

However, many Egyptians – especially those on fixed incomes such as government employees and pensioners – are forced to think twice before donating, resorting to stricter spending habits to cope with the current economic situation.

In recent months, the Egyptian pound has faced multiple devaluations, officially standing at EGP 31 to the US dollar as of March 26, compared to EGP 19 to the US dollar in September last year . This series of devaluations has occurred as a result of a chronic shortage of hard currency, and the cost of living has increased significantly, as well as a shortage of imported goods.

Although this has an impact on the standard of living of citizens in general, the impact is dominated by low and middle income Egyptian families and individuals. But aside from out-of-reach price points and unavailability of imported goods, some of the impact is fueling a deeper fall.

In the case of charity, the effect of devaluation and inflation is threefold: Firstly, the harshness of current economic conditions requires charities to have more people if they can get them. Second, fewer people have enough to spare for donations, and those who do donate are more likely to reduce the size of their donations.

Thirdly, the rise in prices also means that charities, hospitals and other organizations are getting less bang for their buck from these donations. As a result, fewer people may benefit, and those who do may not benefit as much – in terms of quality or quantity.

This is not the only example of the decline of the currency crisis and inflation. While the shortage of some luxury goods such as food and branded clothing has led to a shortage of foreign currency, it has also affected other more critical goods. For example, shortages of imported goods such as pharmaceuticals and other medical necessities lead to a deterioration in the general quality of life of citizens. The same goes for spare parts for cars and home appliances.

The persistent inflation has also reduced the purchasing power of buyers, meaning they are unable to buy as much as they did before, putting additional pressure on businesses. More established and resilient businesses may emerge from this crisis with their heads above water, but strategies to mitigate the impact may include downsizing and layoffs, which could cut off citizens who are already in the worst situation.

Meanwhile there is more uncertainty for small businesses, especially those that rely on imported goods or services, and some may find that their only option is to go out of business permanently . Small sellers, who live from small sales day by day, face even harsher conditions.

All this is not to say that all indirect effects are perforce negative. The devaluation of the Egyptian pound to foreign currencies has also made Egypt more affordable for those living abroad. Egyptians who earn their income abroad may find it easier to get a trip home at a time like this, and Egypt’s price point as an increasingly competitive holiday destination could benefit economically. more attractive.

In addition, the affordability of locally produced goods may be attractive to foreign buyers, putting pressure on Egyptian exports to become more competitive.

However, these cash lines are a drop in the bucket for Egyptians who do not have access to essential goods or whose employment is uncertain, coping with daily difficulties and the disproportionate effects of the current currency crisis. To the extent that good economic times do not always spread their benefits equally among different segments of society, the injuries of hard economic times always hit some harder than others.

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