<p>In this week's edition In this week's edition we take a look at implications of rise in fuel prices and minimum wages, and the return to daylight saving time</p>
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<h2><span style="color: rgb(6, 71, 137);"><strong>Fuel Price Rise in Egypt: Implications and Recommendations</strong></span></h2>
<p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1711351053imageFuel Prices EN.png" alt="" width="405" height="304"></p>
<p dir="ltr" style="text-align: justify;">On Wednesday, March 1, the Ministry of Petroleum issued a<a href="https://www.reuters.com/markets/commodities/egypt-raises-gasoline-prices-quarterly-review-2023-03-02/">&nbsp;decision</a>&nbsp;raising the prices of gasoline and car gas by 7&ndash;11%, while leaving the price of diesel unchanged. In hiking the price of a liter of 92-octane gas by some 11%, the decision contravenes a law that sets a 10% ceiling on adjustments in petroleum product prices, whether up or down. The price increase is consistent with the terms of Egypt&rsquo;s IMF loan, which calls for reducing government subsidies on many commodities, especially fuel.</p>
<h3 dir="ltr"><strong>Global decline in fuel prices</strong></h3>
<p dir="ltr" style="text-align: justify;">The Ministry of Petroleum attributed the price increase to fluctuations in Brent crude prices and the exchange rate of the Egyptian pound against the dollar. Oil prices have&nbsp;<a href="https://www.globalpetrolprices.com/gasoline_prices/">declined globally</a>&nbsp;to levels similar to those seen before the Russian-Ukrainian war, meaning that the increase in the price of fuel in Egypt is due solely to the decline in the value of the Egyptian pound.</p>
<p dir="ltr" style="text-align: justify;">Oil prices currently stand at USD 77.65&ndash;84 per barrel, compared to pre-war prices of USD81 per barrel in November 2021 and USD91 per barrel in January 2022. Gas prices peaked in Europe in August 2022 at about EUR350 per megawatt/hour, but also began to fall in September 2022, reaching less than EUR50 per megawatt/hour.</p>
<p dir="ltr" style="text-align: justify;">According to<a href="https://www.alaraby.co.uk/economy/%D9%85%D8%B5%D8%B1-%D8%AA%D8%B1%D9%81%D8%B9-%D8%A7%D9%84%D8%AD%D8%AF-%D8%A7%D9%84%D8%A3%D8%AF%D9%86%D9%89-%D9%84%D9%84%D8%A3%D8%AC%D9%88%D8%B1-%D8%A5%D9%84%D9%89-113-%D8%AF%D9%88%D9%84%D8%A7%D8%B1%D8%A7%D9%8B-%D9%88%D8%A7%D9%84%D9%85%D8%B9%D8%A7%D8%B4%D8%A7%D8%AA-15-%D9%85%D9%86-%D8%A5%D8%A8%D8%B1%D9%8A%D9%84">&nbsp;reports</a>&nbsp;issued by the General Petroleum Corporation in February, petroleum subsidies climbed 288.2% during the first half of fiscal year 2022/2023 to reach EGP66 billion, compared to EGP17 billion in the same period of fiscal year 2021/2022. Despite successive increases in fuel prices, the energy subsidy bill has not shrunk as was hoped.</p>
<h3 dir="ltr"><strong>Implications of the fuel price rise</strong></h3>
<p dir="ltr" style="text-align: justify;">The jump in fuel prices is expected to trigger a new wave of price hikes in basic commodities, most importantly food, by up to<a href="https://www.alaraby.co.uk/economy/%D9%85%D8%B5%D8%B1-%D8%AA%D8%B1%D9%81%D8%B9-%D8%A7%D9%84%D8%AD%D8%AF-%D8%A7%D9%84%D8%A3%D8%AF%D9%86%D9%89-%D9%84%D9%84%D8%A3%D8%AC%D9%88%D8%B1-%D8%A5%D9%84%D9%89-113-%D8%AF%D9%88%D9%84%D8%A7%D8%B1%D8%A7%D9%8B-%D9%88%D8%A7%D9%84%D9%85%D8%B9%D8%A7%D8%B4%D8%A7%D8%AA-15-%D9%85%D9%86-%D8%A5%D8%A8%D8%B1%D9%8A%D9%84">&nbsp;5%</a>. This new burden on citizens and businesses alike coincides with the approach of the month of Ramadan, when household consumption and purchases spike, as well as the growing import bill for goods and seasonal requirements.</p>
<p dir="ltr" style="text-align: justify;">The increase in fuel prices will also be reflected in inflation rates, already high due to the depreciation of the Egyptian pound. The urban&nbsp;annual inflation rate rose to 32.9% in February 2023, quadrupling over the last year to reach the highest level in six years, according to<a href="https://www.capmas.gov.eg/">&nbsp;CAPMAS</a>. Nonetheless, some experts<a href="https://twitter.com/steve_hanke/status/1630621352578121728">&nbsp;question</a>&nbsp;the accuracy of the official data, estimating that inflation in Egypt exceeded 100% &ndash; fivefold the official figure &ndash; even before calculating the impact of the latest fuel price rise.</p>
<h3 dir="ltr"><strong>Local production opportunities: better prices?</strong></h3>
<p dir="ltr" style="text-align: justify;">The Egyptian government is actively seeking to reduce subsidies in line with IMF conditions, despite the societal stresses such a move entails, even as it defers or ignores other terms of IMF assistance, which include limiting dollar spending on new projects &ndash; the government is still launching and moving forward with housing and infrastructure projects &ndash; and the state exiting from various economic sectors. But despite the reliance on austerity measures to plug budget deficits, subsidies and deficits in Egypt continue to mount.</p>
<p style="text-align: justify;">To counter the continuous rise in fuel prices, experts recommend moving forward with plans for the production of gasoline and diesel that were adopted by the government in recent years but have yet to be implemented. Studies<a href="https://www.annd.org/en/publications/details/a-spill-of-flaws-egypts-imf-backed-energy-subsidy-plan">&nbsp;indicate</a> that the Egyptian General Petroleum Company and its affiliated bodies, the only market players in the production of oil-derived products, suffer from structural mismanagement and consequently poor production efficiency. Specialists thus point to the need to modernize crude oil refineries and to adopt more efficient and sustainable production methods. This would enable Egypt to provide more of the country&rsquo;s oil needs domestically &ndash; 25&ndash;30% of our needs currently come from abroad &ndash; thus reducing prices and the subsidy bill.</p>
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<h2><span style="color: rgb(6, 71, 137);"><strong>Raising the Minimum Wage for the Public Sector: Is It Enough?</strong></span></h2>
<p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1711352019imageFuel Prices-10.png" alt="" width="405" height="312"></p>
<p dir="ltr" style="text-align: justify;">President Abdel Fattah El-Sisi<a href="https://english.ahram.org.eg/NewsContent/1/64/491010/Egypt/Politics-/Egypt-raises-minimum-wage-for-government-employees.aspx">&nbsp;announced</a>&nbsp;a series of wage and social benefit increases on Thursday, March 2, 2023, set to take effect on April 1. These include a salary bump of at least EGP1,000 for civil servants, bringing the minimum monthly salary to EGP3,500 (about USD116); a 15% increase in pensions; an increase in the annual income tax exemption from EGP24,000 to EGP30,000; and a 25% increase in financial allowances for beneficiaries of Takaful and Karama programs.&nbsp;<a href="https://enterprise.press/am-edition/#cabinet-watch">According</a>&nbsp;to the cabinet, the cost of the raise for civil servants amounts to EGP190 billion pounds (about USD6 billion) annually.</p>
<h3 dir="ltr" style="text-align: justify;"><strong>Are public sector wages really up?</strong></h3>
<p dir="ltr" style="text-align: justify;">In light of unprecedented inflation and the depreciation of the Egyptian pound by 275% over the last decade, real wages in dollar terms have fallen by 35%. According to an International Labor Organization<a href="https://www.ilo.org/digitalguides/en-gb/story/globalwagereport2022-23#intro">&nbsp;report</a>&nbsp;&ldquo;Global Wage Report 2022/2023: The Impact of Inflation and COVID-19 on Wages and Purchasing Power,&rdquo; rising inflation erodes the purchasing power of the middle classes and hits low-income households in particular, because they spend most of their disposable income on basic goods and services, which generally experience greater price increases than non-essential items. As the purchasing power of those at the low end of the wage scale is diminished, income inequality and poverty also increase.</p>
<h3 dir="ltr" style="text-align: justify;"><strong>How will the higher minimum wage be funded?</strong></h3>
<p dir="ltr" style="text-align: justify;">As the Egyptian government has pursued austerity measures in an attempt to rein in spending and reduce debt, wages as a share of the state budget have shrunk over the last 10 years from 25% to 11%, or from 8.2% to 4.9% of GDP. This is because the biggest bulk of the budget goes to debt service.</p>
<p dir="ltr" style="text-align: justify;">This leads us to wonder what sources the government will use to provide the USD190 billion wage package? According to the Ministry of Finance, the November 2022 bill for the wage increase &ndash; amounting to EGP67 billion &ndash; was&nbsp;<a href="https://arabi21.com/story/1497884/%D8%A7%D9%84%D9%85%D8%B5%D8%B1%D9%8A%D9%88%D9%86-%D9%8A%D8%AA%D8%B1%D9%82%D8%A8%D9%88%D9%86-%D9%85%D8%A7-%D8%A8%D8%B9%D8%AF-%D9%82%D8%B1%D8%A7%D8%B1-%D8%B2%D9%8A%D8%A7%D8%AF%D8%A9-%D8%A7%D9%84%D8%A3%D8%AC%D9%88%D8%B1-%D9%84%D9%84%D9%85%D9%88%D8%B8%D9%81%D9%8A%D9%86">paid</a>&nbsp;from the 2022/2023 budget reserves, which total EGP150 billion. The government also dipped into those reserves to cover the increase in the cost of wheat, leaving less than needed to fully fund the increase in wages and pensions.</p>
<h3 dir="ltr" style="text-align: justify;"><strong>What about the private sector?</strong></h3>
<p dir="ltr" style="text-align: justify;">While the salary increase does not keep pace with inflation, it does provide a hedge against rising prices for the six million-strong government workforce. But some experts pointed out the government&rsquo;s<a href="https://www.vetogate.com/4827601">&nbsp;disregard</a>&nbsp;for fair wages in the private sector, which, together with the informal sector, makes up two-thirds of the workforce. The average wage in the private sector is 45% lower than the average government salary, according to data from CAPMAS.</p>
<p dir="ltr" style="text-align: justify;">While members of the National Wage Council have vowed to increase private sector wages, employers and companies have refused to bump wages since last year due to losses resulting from the devaluation of the pound, a severe two-year<a href="https://www.zawya.com/en/economy/north-africa/egypts-non-oil-private-sector-hits-26-month-low-in-january-hh1hdb3j">&nbsp;recession</a>, high input prices, and high bank interest rates that have undermined investment. Not to mention the millions suffering from informal employment, unemployment or layoffs following the liquidation of private enterprises on the back of a decline of the civil economy and its contraction.&nbsp;</p>
<h3 dir="ltr" style="text-align: justify;"><strong>Other recommendations</strong></h3>
<p dir="ltr" style="text-align: justify;">Wage increases will not improve the living standards of workers absent urgent intervention to control inflation by expanding investments in the industrial and agricultural sectors and removing obstacles for the export-oriented private sector. Any wage bumps will be eaten up by rising inflation, which reflects the falling value of the pound rather than higher consumer demand or purchasing power. Raising wages can even have a negative impact on inflation when it is not linked to actual production.</p>
<p dir="ltr" style="text-align: justify;">In addition to working to curb inflation by creating alternatives to bridge the financing gap and raising the minimum wage in the private sector, experts recommend increasing the tax exemption limit, which is currently less than the minimum wage, to benefit more low-income people, in addition to temporarily suspending some taxes such as the value-added tax, which plays an important role in fueling inflation.</p>
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<div style="text-align: justify;"><em>"Adasa" is a weekly policy digest by Alternative Policy Solutions. </em><em>"Adasa" provides an analysis of a select number of policy developments and their effect on inclusive development and socioeconomic change.</em></div>

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