As the EGP continues weakening, the Madbouly government promises budget cuts and a fresh social support package to cushion the impact of the regional crisis on both the state budget and the public.

Behind the decisions: The Central Crisis Management Committee headed by Prime Minister Moustafa Madbouly met yesterday in light of the escalating regional tensions, putting forward a plan to rationalize spending and ensure protection for Egypt’s most vulnerable.

The main takeaway: A bump to the minimum wage will be announced “within days” as part of a set of measures to support low-income Egyptians. Madbouly first announced the plan to increase minimum wage last month, promising a “satisfactory” hike. A government official tells us we can expect the minimum wage to rise to EGP 8k starting the new fiscal year.

More to come: We’re told that officials are also planning to adjust income tax brackets, raise the tax exemption limit, and pour more money into pensions and the Takaful and Karama social protection scheme.

Tightening the belt: The plan to rationalize spending and consumption includes canceling government events, reducing official travel, and curtailing training courses. The committee also agreed to review fuel consumption, implement plans to govern street and billboard lighting, and work to reduce the imported volume of non-essential finished goods.

ALSO- The Finance Minister is negotiating new hedging contracts for oil, wheat, and other strategic commodities to protect the upcoming budget from a rising “war risk supercharge.”

Behind the sliding currency

As things stand: The EGP continued weakening against the greenback yesterday, inching closer to 53 per USD. The greenback was changing hands at EGP 52.73- 52.83 yesterday, hitting a fresh low just days after sliding past the 52 mark for the very first time.

We are facing a compounded shock, London-based economist Ali Metwally tells us, adding that “we are facing rising shipping and ins. costs, higher oil prices, and investors are becoming more risk-averse.”

That’s not all: Worried about global shipping disruptions, importers are rushing to secure USDs earlier than usual. At the same time, foreign investors are pulling their money out, selling off USD 411 mn from the local debt market yesterday, which pushed interbank transactions up to a staggering USD 1.1 bn, according to bankers who spoke to EnterpriseAM.

What to watch for: “The real question is not how long the EGP can withstand these pressures but whether the economy has the capacity to finance its external needs and absorb the shock without it turning into a crisis,” Metwally said.

Interest rates tug-of-war: Spooked investors are demanding massive returns, pushing required yields on treasury bills up to 30%. However, the Central Bank of Egypt and the Finance Ministry are refusing to let borrowing costs spiral out of control, we’re told.

The big picture: The country isn’t facing this crisis with an empty wallet. We currently have a solid cushion of FX reserves, bolstered by pre-crisis remittances, the Alam El Roum project, and recent IMF disbursements.

Moving forward: The central bank shouldn’t burn through these reserves just to stubbornly defend a specific exchange rate, Metwally argues. Instead, it should carefully manage market liquidity to prevent panic and avoid hastily hiking interest rates, which would only add to the public debt burden as the market awaits to see how the geopolitical situation unfolds.

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