Egypt has been stricken by the highest level of inflation the country has seen in a decade. The annual urban inflation, currently at about 28%, soared due to decreased state assistance and a weaker currency, thus further undermining beliefs about the economic health of the Arab world’s most-populous country. Egypt floated its currency in November 2015 and made it fall against the US dollar by more than 50%. This steep fall made Egyptian imports more expensive, which – coupled with other measures such as the introduction of value-added tax and increases in imports tariffs – have had a negative impact on Egypt’s middle class.
The Egyptian government introduced the tough measures mainly to comply with the demands of the International Monetary Fund (IMF) and other creditors to bring the economy back to shape following years of political turmoil. The IMF says that economic growth has been around 2.5% on average over the past five years while inflation, the fiscal deficit and unemployment rates reached double digits. Despite the current negative side-effects of the introduced measures, the government’s move to cut subsidies and increase taxes have raised billions of dollars in recent months. The IMF believes that this will support strained finances, pay for the vital imports such as medicine and narrow the Egypt’s deficit. The Washington-based organization also estimates that GDP growth will reach 6% by 2021, which will help create more jobs and tackle joblessness.
To help Egypt achieve this goal of supporting job creation and fostering inclusive growth, the European Union introduced two assistance packages at the end of 2016 with the aim to strengthen social safety nets in the North African country. The instrument called ‘EU Facility for Inclusive Growth and Job Creation’ will leverage some €420 million in support of reforms to improve the environment for business creation and to facilitate access to finance for Small and Medium-sized Enterprises (SMEs). On top of the economic package, both sides also signed a modification to an existing financing agreement implemented by the World Food Program, allowing the provision of school meals to up to 500,000 most vulnerable children attending state elementary schools in poor governorates starting this month.