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

A street vendor sells bananas close to 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 its days, those who are able, share what they can spare with those less fortunate than themselves in the form of donations.

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

Over the past months, the Egyptian pound has faced multiple devaluations, standing officially at EGP 31 to the US dollar as of 26 March, compared to EGP 19 to the US dollar in September of last year. This series of devaluations took place as a result of a chronic shortage in hard currency, and has caused a significant rise in the cost of living, as well as a scarcity in imported goods.

While this has affected the standard of living of citizens across the board, low and middle-income Egyptian families and individuals have been bearing the brunt of the impact. But aside from out-of-reach price points and unavailable imported goods, some of the impact is triggering fallout that goes deeper.

In the case of charity, the effect of the devaluation and inflation is threefold: Firstly, the harshness of the current economic conditions is leading to more people needing support from charities if they can get it. Secondly, fewer people now have enough to spare for donations, while those who donate are more likely to decrease 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 benefit may find themselves benefitting less significantly – in terms of either quality or quantity.

This is not the only example of the spreading fallout of the currency crisis and inflation. While foreign currency shortage has resulted in the scarcity of some luxury items such as branded food and clothing, it has also affected other, more critical goods. Scarcity in imported items such as pharmaceuticals and other medical needs, for instance, contributes to a worsening of the general quality of life of citizens. The same applies to spare parts for cars and home appliances.

The ongoing inflation has also diminished the purchasing power of buyers, meaning they are not able to buy as much as they did before, putting added pressure on businesses. The more established and resilient businesses may come out of this crisis with their heads above the water, but strategies to dull the impact may include downsizing and layoffs, potentially cutting off the income of citizens who are already experiencing the worst of the situation.

Meanwhile smaller businesses, particularly ones that rely on imported goods or services, are faced with greater uncertainty, and some may even find that shutting down permanently is their only remaining option. Small vendors, who live off small day-to-day sales, face even harsher conditions.

All this is not to say that all the indirect effects are perforce negative. The devaluation of the Egyptian pound to foreign currencies has also made Egypt more affordable to those living abroad. Egyptians earning their income abroad may find a trip home easier to achieve at a time like this, while there is potential economic benefit in the price point of Egypt as a holiday destination becoming more competitive and enticing.

Additionally, the affordability of locally produced goods may appeal to foreign buyers, giving Egyptian exports a push to becoming more competitive.

However, these silver linings are a drop in the bucket for Egyptians lacking access to essential goods or facing uncertainty in their employment, grappling with the daily difficulties and disproportionate effects of the ongoing currency crisis. Much as good economic times do not always spread their benefits evenly among different segments in society, the hurts of hard economic times always strike some more severely than others.