A new program of public-sector wage hikes, pension increases + tax breaks as inflation toll mounts: President Abdel Fattah El Sisi announced a new round of public-sector wage and pension hikes on Thursday designed to mitigate the impact of soaring inflation on the public (watch, runtime: 3:03). The measures include wage increases and a higher minimum wage for civil servants, higher pension payouts for state employees, and a higher income tax exemption threshold.

#1- Wage hikes: From 1 April, all civil servants and workers at state-owned enterprises will receive a minimum EGP 1k increase to their monthly salaries, and the monthly minimum wage will rise by at least 17% to EGP 3.5k. The minimum wage for employees with advanced qualifications will rise further: people with Master’s degrees will get at least EGP 6k per month and PhD holders will receive at least EGP 7k.

REMEMBER- This is the third minimum wage hike this fiscal year: The government has now increased the public-sector minimum wage by almost 50% since July before which it was set at EGP 2.4k per month. A second adjustment was made in October raising it to EGP 3k.

Will the private sector move in tandem? The National Council for Wages will start looking into setting a new minimum wage for private-sector workers and discussing the issue with businesses after the public-sector wage changes are signed into law, council member Magdy El Badawy told Al Hayah Al Youm (watch, runtime: 14:15). The council raised the minimum wage for private-sector workers to EGP 2.7k from EGP 2.4k at the start of the year.

Expect pushback: Efforts to raise private-sector wages have received pushback from some firms, who have complained that they can’t afford the higher wage bill. (We don’t think businesses should get exemptions: If you can’t afford to pay a liveable minimum wage, then your business probably doesn’t deserve to exist.)

#2- Pension increases: State pension payouts will rise 15% from 1 April. The measure will impact around 11 mn pensioners, according to National Organization For Social Ins. (NOSI) head Gamal Awad.

#3- An income tax break: The government will raise the personal income tax exemption threshold to EGP 30k from EGP 24k currently. (Remember: There are also plans — as yet still on the drawing board — to raise the maximum tax rate to 27.5% on high income earners, and we understand the taxman has no plan to back down on that front. Cabinet does not presently intend to raise corporate income tax to that level.)

#4- Higher bonuses for teachers, professors, and doctors: Public sector employees, public school teachers and university faculty members, and doctors will see hikes of EGP 300-500 to their bonuses, while doctors working night shifts and those in ER departments will see their incentives double. The Washington Post reported last month that more than 11.5k doctors left Egypt’s public healthcare system between 2019 and 2022 amid low wages and high inflation.

#5 More money for Takaful and Karama: Beneficiaries of the Takaful and Karama social support program will see a 25% rise in cash transfers.

REMEMBER- The government added 1 mn families to the program under two rounds of extra support last year, bringing the total number of beneficiaries to 20 mn.

We knew more money was coming for social support: The World Bank agreed in December to extend a USD 500 mn loan to expand the Takaful and Karama program amid soaring food and energy inflation. The IMF’s USD 3 bn bailout package for Egypt also aims to expand the cash transfer program by an additional 5 mn families.

THE COST-

The full support package will cost some EGP 150 bn, the Finance Ministry said yesterday. The statement broke down the cost of some of the individual measures:

• Pensions: Higher pensions will cost the state EGP 55 bn a year. According to National Organization For Social Ins. (NOSI) head Gamal Awad, the government will spend EGP 14 bn on pensions during the final quarter of FY 2022-2023 (watch, runtime: 4:26);
• Wages: Public sector wage increases will add another EGP 14 bn to the government’s wage bill;
• Takaful and Karama: EGP 6.5 bn will be spent to up Takaful and Karama cash transfers;
• Tax: The higher tax exemption threshold will cost the government around EGP 8 bn, though according to Mostafa Salem, deputy chairman of the House Budget Committee, this is not included in the EGP 150 bn figure.

Expect costing to change when the dust settles: “The EGP 150 bn is just an initial figure,” Salem said. He added that the total figure covers the estimated cost of the measures in both the last quarter of the current fiscal year and FY 2023-2024.

It’s all about inflation: Inflation hit a fresh five-year high of 25.8% in January as the impact of the ongoing depreciation of the EGP causes the cost of living to soar. El Sisi’s address came a few hours after the Oil Ministry announced an immediate increase in fuel prices, which together with the currency volatility and higher demand ahead of Ramadan will likely contribute to further inflation in the coming months. Inflation figures for February will be out later this week.

What’s next? The government will send the new social protection package to the House for approval before it can go into effect.

The news got international attention: Reuters | Bloomberg.