Egypt’s new Cabinet announced Monday that it would increase the salaries and pensions of the country’s 6 million state employees by 15 percent, as the Egyptian pound hit six-year lows against the dollar in trading after Sunday’s reopening of the nation’s banks.
“The reason for the raise goes back to the fact that we sympathize with people and understand the lifestyle issues that they deal with,” Prime Minister Ahmed Shafiq said after the Cabinet’s first meeting.
Egyptian financial officials announced Monday that they had raised more than $2 billion in an auction of Treasury bills and said the Cairo Stock Exchange would reopen Sunday after more than two weeks of closure.
The exchange plummeted 17 percent in two days of trading after the mass protests against President Hosni Mubarak began on Jan. 25.
“It’s yet another tactic on the part of the leadership to reduce the ranks of people who are willing to go into the streets,” he said. “This is an effort, in some ways, to buy political quiescence.”
Egyptian officials said the reopening of banks had not produced the level of capital outflow they had feared, but observers around the world have been monitoring the situation.
“Obviously, we are concerned about the capital that might leave,” White House press secretary Robert Gibbs said Monday.
“We continue to monitor what impact all of these actions might ultimately have on the global economic recovery.”
Egyptians slowly have begun returning to work after the protests brought the nation’s business to a virtual standstill, but the Egyptian economy has suffered wounds that will likely take months, if not years, to heal.
On Friday, economists at the investment bank Credit Agricole estimated that the crisis was costing the economy $310 million a day and revised their growth rate projections for Egypt’s gross domestic product this year from 5.3 percent to 3.7 percent.
Last week, Moody’s downgraded Egypt’s government bond rating and changed its outlook from stable to negative, saying the cuts were “prompted by the recent significant rise in political event risk and concern that the policy response could undermine Egypt’s already weak public finances.”
Although Egypt has posted growth rates at roughly 7 percent a year from 2006 through 2008, average income remains low by regional standards, with an estimated 40 percent of Egypt’s nearly 80 million citizens subsisting on less than $2 a day.
Meanwhile, the unemployment rate remains high, with unofficial estimates hovering near 25 percent.
Mr. Cook said Egyptian leaders’ attempts to deal with unemployment, mostly via economic reform and privatization, “created a whole host of underlying economic grievances: People in the state-owned sector were [upset] about privatization, people other than the very wealthy were concerned about higher prices.”
Egypt, which lacks the oil reserves that buoy the economies of its Persian Gulf neighbors, depends on revenues from the Suez Canal and the millions of tourists who flock to the pyramids and other ancient attractions.