The limited recovery of the Egyptian pound's exchange rate against the dollar has raised questions about its impact on the prices of commodities and food products, which have witnessed a recent rise with the rise of the dollar.
But the decline in the price of the dollar against the pound does not necessarily assume that prices will decline at the same speed, according to experts who spoke to Asharq Al-Awsat, and they confirmed that there are several factors that control the market and the pricing mechanism.
By the end of last week, the pound had regained about 5 percent of its value, bringing the price of the dollar to about 53.7 pounds, after a wave of rise in which the dollar broke the 56-pound barrier. The recovery came after the Egyptian Central Bank’s decision, on October 29, to raise interest rates by a percentage point, to 20 percent for deposits and 21 percent for lending.
But the improvement in the price of the pound was not reflected in prices, amid continuing complaints about high prices and government promises to control markets and rationalize spending.
During the past weeks, the prices of cars, electrical appliances, and some food commodities have increased in Egypt, in addition to the prices of some building components, most notably iron.
Economist Mustafa Badra attributed the reason for the lack of rapid decline in prices to the fact that “traders usually evaluate commodities according to the dollar exchange rate in futures contracts, which is usually higher than the official exchange rate.”
He told Asharq Al-Awsat that “traders evaluate the price of the commodity at the highest exchange rate reached by the dollar in order to maintain the continuity of their gain and capital circulation,” noting that “the decline in the exchange rate of the dollar does not necessarily reflect on the price of commodities in the markets that entered the market at a higher exchange rate.”
He added, “The average capital cycle in some commodities is up to three months, which means that the new exchange rate may not be reflected in the markets before this period, assuming that merchants reduce prices if the dollar continues to decline against the pound, which does not always happen.” He continued, “In many cases, the merchant maintains the same prices as a hedge for the future.”
Economist Dr. Medhat Nafie pointed to a common saying that “prices rise at the speed of a rocket and fall at the speed of a feather,” explaining to Asharq Al-Awsat that “the pricing mechanism does not depend on the current exchange rate, but also looks at expectations of the exchange rate in the future.”
He said that anyone who follows the exchange rate of the pound over the past ten years will find that “there is a stable and regular periodic loss of the value of the pound against the dollar, amounting to about 17 percent annually,” which means that “even if the exchange rate of the pound improves now, expectations indicate that it will decline again against the dollar, as long as the situation continues in which Egypt’s dollar needs are greater than its ability to produce and export.”
He added that “the reflection of the decline in the price of the dollar on pricing requires measuring several factors, including the production cycle and the continuation and severity of the decline,” noting that “the pace of the dollar’s decline against the pound is usually less than the pace of its rise.”
The debate over prices overlaps with the government’s announcement of a decline in inflation, as the annual inflation rate fell during October to about 12 percent, compared to 12.8 percent in September, according to Egyptian Cabinet data.
Nafie stressed, “It is difficult for prices to fall once the pound rises against the dollar, as the matter is linked to a degree of hedging for the future. Because pricing is linked to various items and production costs, it requires the trader to exercise a degree of prudence and hedge for the future, and calculate the size of the shock and its repercussions in the markets.”
The visit of Egyptian Foreign Minister Badr Abdel Ati to the Libyan capital, Tripoli, on Saturday, combines expanding cooperation and opening channels for political consultation. At a time when the “interim” unity government is betting on an Egyptian role that will help contain the Libyan division.
Observers are looking with great interest at the visit, which came to participate in the work of the twenty-second session of the Executive Council of the Community of Sahel-Saharan States, as the first by an Egyptian foreign minister in 5 years, as Abdel-Ati held talks with the head of the “unity” government, Abdel Hamid Dabaiba, which received attention from local media in the west and east of the country.
According to the “unity” government, the meeting focused on expanding the horizons of the Egyptian-Libyan partnership and enhancing political consultation, which reflects Tripoli’s desire to benefit from Cairo’s relations with various Libyan parties, and to support efforts aimed at converging viewpoints between the Libyan East and West camps.
On the sidelines of the meeting, the two sides signed a memorandum of understanding for cooperation in the health field, in the presence of the Libyan Minister of Health, Muhammad Al-Ghouj, and the Egyptian Minister of Foreign Affairs. The memorandum aims to exchange experiences and capabilities, and expand partnership between health institutions, in a way that contributes to developing medical services and improving the level of health care.
Tripoli's messages were not limited to sectoral cooperation; Al-Dabaiba expressed openness to an Egyptian role in addressing the political crisis, stressing that “his government is counting on its relations with Cairo to support the country’s unity,” in light of the continuing division between two executive authorities in the Libyan east and west.
In statements reported by the Cairo News satellite channel on Saturday, Al-Dabaiba said: “We count on our friends and neighbors, especially Egypt, to support the unity of Libya,” adding: “We do not mind any positive intervention that is in the interest of Libya and its people.” He also referred to UN and international efforts in which Cairo is participating to support reconciliation.
These messages coincided with Abdel Aty’s opening of the headquarters of the Egyptian Embassy in Tripoli, in a step that carries diplomatic significance at the level of direct communication between the two countries. This comes after years of consular services being disrupted, despite the diplomatic mission resuming its activity in the capital in 2021.
The last announced visit by an Egyptian foreign minister to Tripoli before Abdel Aty’s visit dates back to October 21, 2021, when former Minister Sameh Shoukry participated in the “Supporting Libya’s Stability” conference and met with officials, in a move that was linked at the time to supporting the political track and holding elections.
Political analyst Hossam Fneish believes that “the visit represents a shift in the course of relations between Cairo and Tripoli,” highlighting that it “sends a message to the Libyans that Egypt seeks to build a partnership with various parties, not limiting its relations to one specific political or geographical party.”
Historically, Cairo has had close relations with the Libyan National Army in the east of the country, led by Field Marshal Khalifa Haftar, since the launch of its military operations in 2014 against extremist groups. However, Egypt’s contacts with western Libya have also witnessed expansion over the past two years, through multiple political and security meetings.
In this context, Cairo recently hosted a meeting that included military leaders and representatives of armed formations from western Libya, and the head of Egyptian intelligence, Hassan Rashad, received the Deputy Minister of Defense of the “unity” government, Abdul Salam Al-Zoubi, in communications that included security and military files.
Former Egyptian Foreign Minister, Senator Mohamed Al-Orabi, believes that Abdel-Aty’s visit falls within the framework of Cairo’s movements to bring views closer between eastern and western Libya, leading to the unification of state institutions, in light of the continuing political division.
Al-Orabi told Asharq Al-Awsat that the Egyptian move complements the efforts of the United Nations and international initiatives to resolve the crisis, pointing to the importance of the mechanism of neighboring countries, which includes Egypt, Tunisia and Algeria, in supporting consensus between the Libyan parties and pushing the political process forward effectively and in a tangible way.
Al-Orabi linked this interest to Egyptian national security considerations, saying that “Cairo is moving based on its concern for the stability of Libya, as part of its national security, in addition to working to limit foreign interference and support a settlement that preserves the country’s unity and its stable, unified national institutions.”
The issue of demarcating the maritime borders between Libya and Turkey was not absent from the visit talks, after the Libyan House of Representatives finally approved the memorandum of understanding, signed between Tripoli and Ankara in 2019, a step that raised Egyptian, Greek, Cypriot and European objections earlier on the part of Cairo.
Al-Dabaiba announced that the “Libyan-Egyptian Joint Committee” will meet to discuss the maritime border issue, and he said in this regard: “Whoever has maps will submit them, and this is a healthy thing for us to dialogue and discuss. As for individual decisions and stubbornness, they will not lead us to any result that serves the common interests of the two countries.”
Al-Orabi points out that Cairo has visions regarding the repercussions of the Libyan parliamentary move, pointing out that “the Dabaiba government has shown an understanding of the Egyptian concerns, allowing the file to be discussed through common channels, instead of letting the differences expand in light of the intertwining of overlapping and concerned regional and international interests.”
The former Egyptian Foreign Minister ended up describing the maritime border issue as “complex,” due to its connection to the Turkish presence in Libya and the overlapping of regional and international interests, but he spoke of “the existence of a political will to address the differences, in a way that preserves Egyptian and Libyan interests, and opens the way for broader understandings in the future between the two countries.”
A proposal presented by the “interim” unity government regarding reducing the salaries of ministers and senior officials in Libya sparked widespread criticism, in a move that observers saw as “not dissipating anger over wage gaps.”
The proposal prepared by the Ministry of Finance included setting a fixed ceiling for some senior officials, ministers, and heads of sovereign, supervisory, and judicial bodies, at 9,000 dinars per month.
But a number of observers believe that “the essence of dissatisfaction is not related to the size of the reduction alone; Rather, it is the conviction of a sector of Libyans that a segment of elites and senior officials do not depend for their standard of living on official salaries. Because they also benefit from additional privileges, allowances and allocations.”
According to the former Minister of Economy and Trade in the “Unity” government, Muhammad Al-Hawaij, “the minister’s net salary currently amounts to 10 thousand dinars per month.” Pointing out in a statement to Asharq Al-Awsat that some ministers “double this number through allowances for travel, housing, and foreign assignments.”
These concessions raise questions about the ability of reducing the basic salary to reduce the total income of officials. Especially in light of the decline in the purchasing power of the dinar, noting that the currency exchange rate varies between the official price of about 6.40 dinars to the dollar, and the “parallel market” in which it is close to 10 dinars.
Sarcastic reactions
Talk about officials’ salaries sparked sarcastic comments on social media. In this context, Libyan journalist Ahmed Al-Senussi asked how some ministers dealt with the reduction proposal, highlighting that a piece of their luxury clothing or shoes could sometimes reach 900 euros.
For his part, Libyan political analyst Mohamed Mahfouz stopped at the street’s conviction that “the elites do not depend on their official salaries,” considering that this explains the irony of the reduction. He told Asharq Al-Awsat, “The salaries these people receive over the years are not commensurate with their high standard of living, and therefore they will not care about any financial decision.”
From an economic angle, Ali Al-Sharif, professor of economics at the University of Benghazi, said that reducing salaries is “not easy,” pointing out that the salary of the President of the Presidential Council and his two deputies may decline from about 25 thousand dinars to 9 thousand dinars per month.
But Al-Sharif pointed out that senior officials “ultimately represent less than 2 percent of state workers,” considering that reducing their incomes alone will not lead to a tangible improvement in the economic situation. He also warned against compensating the reduction with bonuses, pointing out that the performance discrimination bonus for some bodies reaches 70 percent.
On the other hand, criticism shifted to the basic salaries proposed for the rest of the employees. The proposal specified 1,000 dinars for the first job grade, 1,710 dinars for the eighth grade, and 4,912 dinars for the sixteenth grade, which brought the discussion back to the adequacy of wages.
Al-Hawaij criticized these levels, saying that “wages do not suffice for the necessary needs; Especially since about 40 percent of the population is below the poverty line,” he pointed out that salaries - according to his estimate - range between the equivalent of $100 and $430 per month.
Political analyst Hossam El-Din Al-Abdali attributed the street’s objection to this proposed schedule to its failure to meet the demands of low-income people and the middle class. He told Asharq Al-Awsat that “the unions did not focus on reducing the salaries of representatives from 16,000 to 9,000 dinars, as much as they focused on the small increase granted to them.”
“The crisis does not lie in the official’s salary.”
From a broader perspective, the former Minister of Economic Affairs in the “Unity” government, Salama Al-Ghawil, criticized reducing the treatment of the wage file to “reducing the salaries of ministers, representatives, and other pillars of power, and highlighting the reduction of the difference between their incomes and that of the general population.”
He told Asharq Al-Awsat, “Tackling the issue requires an integrated program for economic, administrative, and social reform that links wages to production, and before that, addressing the political and governmental division, and the resulting inflation in the numbers of state workers.”
Libya is experiencing a division between the “unity” government headed by Abdul Hamid Al-Dabaiba in Tripoli in the west, and the government appointed by the House of Representatives headed by Osama Hammad, which runs the east and some cities in the south, and enjoys the support of the commander of the “National Army,” Khalifa Haftar.
Although he did not support the inflated salaries of senior officials, Al-Ghawil criticized their reduction “in an ill-considered manner that does not take into account the privacy of the position and the requirements of public work,” stressing that “the crisis does not lie in the official’s salary; Rather, it is about how to achieve dignity of living for all.”
Official figures reveal the size of the burden represented by the wages item in the Libyan state budget. During the first nine months of this year, the salaries of about two million two hundred thousand employees amounted to about 60 billion dinars, equivalent to about 68 percent of the total public spending amounting to 88.6 billion dinars.
