Credit to government for measures to combat spread of coronavirus, but protecting individuals’ income and mitigation of economic and social impacts of the virus prevention are necessary
The Egyptian Initiative for Personal Rights credits the efforts of the Egyptian government to combat the spread of the novel coronavirus, but we assert that the socioeconomic priority in this crisis must be protecting individuals’ income, ensuring the provision of strategic goods to the market, and maintaining price stability. Only after that should the state step in to support companies and factories with measures that do not risk individuals’ health, impinge on allocations to citizens, or eat into taxpayer funds.
The EIPR is monitoring actions by the government and Central Bank of Egypt (CBE) to mitigate the economic and social impact of preventive measures to combat the spread of COVID-19. We are assessing such action in light of the protection of citizens’ lives, health, and income and the imperative not to endanger workers’ health and lives for the sake of running the economy at full capacity. The EIPR proposes a set of measures that will ensure that the poorest groups do not bear the brunt of the crisis.
Over the past week, the Egyptian government took several steps to mitigate the economic impact of measures designed to slow the spread of the virus and contain the anticipated economic fallout. But the government gave precedence to support for Egyptian factories and firms, using expansionary monetary and fiscal policy to shore up the stock market and encourage industry and the private sector, some of which working in non-essential sectors. This will reduce the tax and non-tax revenues needed both by the treasury and citizens. At the same time, the government has been slow to use these same levers to protect the health and income of individuals, particularly the neediest. It did not direct a stimulus package to individuals, and it continues to risk the health of most individuals by continuing to allow non-essential private businesses to operate at full capacity. This policy stands in stark contrast to the laudable measures taken for workers in the government and public sectors.
If the government has prioritized continued production in order to confront an epidemic whose containment requires workers to stay home to avoid infection and contagion, this support for industry and business should at least be coupled with a prime ministerial decree requiring reduced crowding in private workplaces and paid leave in the private sector. Non-essential sectors should operate at half-capacity and rotate staff for onsite positions.
The Egyptian government must adopt expansionary fiscal policies for individuals like several other states. These policies include exceptional payouts to informal or gig workers and unemployment assistance to people who lose their jobs due to the crisis. In addition, it should suspend the collection of insurance payments, taxes, and electric, water, and gas bills from low- and medium-income groups, increase cash and in-kind benefits for holders of supply cards, and offer rent and social housing subsidies.
A brief overview of public policy
Recently, for the first time since the summer of 2014, the Egyptian government and CBE have adopted expansionary fiscal and monetary policies to counter the slowdown in consumption and production and the decline in employment, wages, tax revenues, and exports, expected as a result of epidemic prevention measures.1 Entire sectors such as tourism, airlines, and foreign trade have shut down while others like transport and transit, manufacturing, internal trade, and retail and wholesale trade have slowed, as citizens are enjoined to stay at home to minimize transmission of the virus. This is all expected to impact economic growth as well as individual income and tax and non-tax government revenues.
On 14 March 2020, the Egyptian president designated LE100 billion for a plan to combat COVID-19 and fund preventive measures. The Cabinet and president’s office subsequently responded to rumors that the sum would be deducted from next year’s budget, saying that the funds would instead come from public reserves designated for exceptional circumstances2. On 17 March, the CBE, following an emergency meeting of its monetary policies committee, cut the interest rate by 300 basis points, or 3 percent. The same day, “an official banking source” told al-Boursa newspaper that more than LE100 billion in liquidity would be injected into the Egyptian economy as a result of the interest-rate cut3. This seems quite realistic since the decision will make available budget funds that would have gone to paying government debt in the fourth quarter of this fiscal year (April–June). The interest-rate cut therefore roughly gives the government the LE100 billion earmarked for the epidemic package.
Support for factories and firms
The CBE and the Egyptian government released a set of decrees to support private-sector factories and firms and the stock market in the days subsequent to the cut in interest rates. Most of these involved the state waiving claims on factories and companies or cancelling state payables to future creditors, rather than direct payments from the public treasury. In other words, the LE100-billion package does not necessarily refer to funds that will be paid out by the government or CBE. The support was largely of three types:
- Waivers for tax claims, fees, and service payments, such as cuts to the stamp tax on stock market transactions, reductions in the price of gas and electricity to factories, or deferment of property taxes owed by factories and tourist facilities.
- Reduction of payments for future government debt, which was discounted by cutting the interest rate on government debt and directing it to the package.
- Direct payments, which have thus far been granted by only two decrees: the provision of LE1 billion to exporters in March and April and funds for the SME development agency.
The limitations of monetary policy
Despite rapid action by the CBE, measures taken to protect individuals’ income leave most citizens exposed, demonstrating that monetary policy fixes, particularly in an economy like Egypt’s, are of limited use in directly protecting the income of the neediest individuals. CBE steps to confront the crisis included settling with some delinquent borrowers, deferring bank loan payments for consumer goods and property, and facilitating access to banking services by raising daily withdrawal limits, providing money to banks and ATMs, and cancelling withdrawal fees. Although these are generally good measures, they reflect the limitations of monetary policy since no more than 16 percent of Egyptians, or 32.8 percent of Egyptians over the age of 154, have bank accounts and deal with the banking sector. This means that all action taken to prevent incomes from being eroded under pressure of the crisis will only benefit the least vulnerable high-income groups with the most savings, as well as a small segment of middle-income groups.
The private sector and labor
Despite support for companies and factories, the government did not require the private sector to comply with the prime ministerial decree reducing workplace crowding and providing paid leave. An 18 March meeting between the minister of manpower and representatives of the federations of chambers of industry, commerce, and tourism did not end with a decree reducing worker density in the private sector.5 A delay in coming to an agreement means that most private-sector workers, who account for some 80 percent of all Egyptian workers, or roughly 26 million individuals (according to the most recent labor force statistics from mid-2019), continue to populate and crowd streets and public transport daily, risking the virus to spread more rapidly than it would if workers stayed home with guaranteed protection for their wages.6
The Cabinet issued Decree 719/2010 permitting state administrative and public-sector workers to work from home if feasible while allowing remaining workers to rotate shifts on a daily or weekly basis, with exceptions for essential workers in transport, paramedics, hospitals, and water, sanitation, and electricity services, whose work is to be regulated by the competent authorities. The decree also gave state workers, who are chronically ill, pregnant women, and women workers caring for a child under the age of 12 or a disabled child of any age, paid leave that will not be deducted from their legally mandated leave time or impact their financial benefits. This provision will apply as long the Cabinet decree is in force or another decree is issued to amend it.7
This decree is consistent with the policy we support and believe is most appropriate for dealing with an epidemic, based on the recommendations of the Egyptian Health Ministry and the World Health Organization. The private sector must also adopt this policy, reducing and rotating its workforce in non-essential sectors while protecting their wages, instead of risking their lives and those of their families in the midst of a plague.
Steps needed to protect individual income to confront the crisis
Just like the government waived taxes and fees on stock market transactions, waived taxes and cut energy prices for factories and firms, and offered subsidies for exporters, and just like the CBE pursued monetary easing measures that are expected to benefit big business owners and high income earners, along with some middle-income groups and SMEs, there is an urgent need for expansionary fiscal policies and accommodations for individuals.
The package needed includes action on private-sector wages; exceptional grants to informal workers; unemployment assistance for people who lose their jobs because of preventive measures, coupled with guarantees of no layoffs if the current crisis continues; a moratorium on the collection of insurance payments, taxes, and electric, water, and gas bills for low- and medium-income groups; an exceptional increase in cash subsidies through social security pensions and the Takaful program, as well as in-kind subsidies to holders of supply cards; support for rent and social housing, coupled with a moratorium on evictions for any reason until the end of the crisis; and a suspension of notices of failure to pay rent. All of this would protect citizens, particularly low-income groups, and the owners and employees of SMEs, especially those who do not deal with the SME development agency and are not covered by the law.
The most important measures required can be summarized as follows:
1. Urgent action for informal laborers by the Ministry of Manpower. This should start with exceptional measures to enable new informal workers to receive an "Aman insurance" policy, which offers insurance protection for informal workers and would let them take advantage of the grants recently announced by the Ministry of Manpower. This could be done through subscription in post offices, while maintaining social distancing and disinfection measures, as well as online, and should be announced through heavy advertising on television and radio. Unemployment assistance should also be provided to those who lose their jobs due to preventive measures, with assurances for no layoffs if the crisis persists.
Manpower Minister Mohammed Saafan approved an exceptional payment of LE500 for informal workers registered on the database of governorate manpower departments. According to statements from the ministry, the payment will be disbursed through post offices in the area of residence of every worker. According to the minister8, the grant will benefit some 300,000 informal workers in the neediest villages who are registered on the ministry’s database or with the "Aman life insurance" program9. This explains the relatively small number of beneficiaries compared to the size of the informal workforce in Egypt, estimated at 8.76 million, or 30 percent10 of Egypt’s roughly 26 million workers.11 With this measure, the exceptional payment will reach only those informal workers registered with the ministry, or about 4.6 percent of the total.
It is worth noting that Dr. Ahmed Abd al-Aziz, the chairman of Egypt Life Insurance, which holds the policy with the CBE, Bank Misr, the National Bank, and others, said in July 2019 that more than 900,000 people had enrolled in the program since its inception in March 2018.12 This inconsistency in the numbers should be clarified by the Ministry of Manpower.
- Informal workers registered in the databases of the governorate-level manpower departments.
- The heirs of informal workers in the case of traffic accidents leading to death (to and from work).
- Registered beneficiaries who were identified by the Protection campaign.
- Informal workers in the neediest villages covered by an Aman life insurance policy.
2. A moratorium on the collection of insurance payments, taxes, and electricity, water, and gas bills for low- and middle-income groups
- A moratorium on the collection of insurance payments and taxes for the second, third, and fourth income quintiles.
- Exemptions from monthly electricity bills for the first to fifth household consumption groups, with continued collection for the highest—sixth and seventh—consumption groups.
- Exemptions from monthly gas bills for all household consumption groups.
- Exemptions from monthly water bills for the first, second, and third household consumption groups, with continued collection for the highest—the fourth and fifth—consumption groups.
3. Exceptional increase in cash benefits through social security pensions and the Takaful program
So far the Ministry of Social Solidarity has issued no decree increasing Takaful or social security pension payments in order to confront the crisis, which is having an extreme impact on the poorest groups. Some 3.2 million families benefit from social security pensions and the Takaful program, according to 2018/19 estimates, to the tune of LE17.7 billion.
4. Exceptional increase in in-kind benefits for holders of supply cards
The Ministry of Supply and Internal Trade has issued no decree increasing the benefit allowances. There are currently 22 million supply cards that provide subsidized bread to 71 million citizens and other subsidized goods to 63.4 million citizens, at a cost of LE89 billion in the 2019/2010 budget. Supply cards are important because they allow easy access to those most in need of support during this period, allowing families to spend the allowance on their smart cards at consumer and government-supported outlets. Currently, each person enrolled on the card receives food and non-food goods worth LE50 every month for the first four individuals and LE25 per month for every individual on the card after that, in addition to 150 rounds of subsidized bread per month at a price of 5 piasters each.14
5. Support for rent and social housing
The Housing Ministry and community facilities have issued no decree to support renters in subsidized social housing (it is unclear if these renters are eligible under the CBE measures deferring credit claims for six months) or renters under the new rent law who are the most vulnerable in this crisis. Housing covered by the new rent law is the second largest type of housing, providing shelter to 1.5 million families who pay an average of LE1,200 per month, according to 2017 data.15
- 1. Al-Masry al-Youm, 14 March 2020, https://www.almasryalyoum.com/news/details/1626740.
- 2. Al-Masry al-Youm, 16 March 2020, https://www.almasryalyoum.com/news/details/1627313.
- 3. Al-Boursa, 17 March 2020, https://economyplusme.com/29066/.
- 4. According to the World Bank in 2018. See Cash Matters, 18 August 2019, https://www.cashmatters.org/blog/egypt-67-people-rely-cash-world-bank-2019/.
- 5. Youm 7, 18 March, 2020.
- 6. Ahram Online, 30 April 2019, http://english.ahram.org.eg/NewsContent/1/64/330870/Egypt/Politics-/Egyp....
- 7. Official Gazette, Prime Ministerial Decree 719/2020.
- 8. Youm 7, 17 March 2020.
- 9. Youm 7, 17 March 2020.
- 10. R Assaad, 21 October 2019, Economic Research Forum, https://theforum.erf.org.eg/2019/10/21/egyptian-economy-still-not-creati....
- 11. Ahram Online, 30 April 2019, http://english.ahram.org.eg/NewsContent/1/64/330870/Egypt/Politics-/Egyp....
- 12. Youm 7, 24 July 2019.
- 13. Masrawy, 19 March 2020.
- 14. Al-Mal, 18 March 2020.
- 15. Built Environment Observatory, 19 February 2018, marsadomran.info/facts_budgets/2018/02/1427.