Con­tro­versy over Egypt’s de­ci­sion to end dis­counted cus­toms dol­lar ex­change rate for some non-es­sen­tial im­ports

Coun­try set a monthly fixed cus­toms dol­lar rate in Jan­uary 2017, fol­low­ing flota­tion of Egyp­tian pound in Novem­ber 2016

The Daily News Egypt - - Front Page - By Ne­hal Samir

Egypt an­nounced end­ing dis­counted cus­toms dol­lar ex­change rate start­ing from De­cem­ber for im­ports of some goods that are con­sid­ered non-es­sen­tial, the fi­nance min­is­ter said in a state­ment on Fri­day.

Egypt had set a monthly fixed cus­toms dol­lar ex­change rate in Jan­uary 2017,fol­low­ing the flota­tion of lo­cal cur­rency in Novem­ber 2016.

Dur­ing re­cent months, the cus­toms rate for all goods had been set at EGP 16 to the dol­lar.On the cur­rency mar­ket, Egypt’s pound held steady in a nar­row range of EGP 17.78 to EGP 17.98 to the dol­lar over the last six months.

Start­ing from 1 De­cem­ber, the cus­toms ex­change rate for strate­gic and es­sen­tial goods will re­main at EGP 16, while the rate for non-es­sen­tial goods will be set as the av­er­age ex­change rate listed by the Cen­tral Bank of Egypt (CBE) in the pre­ced­ing month, said Fi­nance Min­is­ter Mo­hamed Moeit dur­ing a press con­fer­ence car­ried by the state-run Mid­dle East News Agency (MENA).

This de­ci­sion raised many ques­tions, such as what would be the im­pact of this de­ci­sion on the mar­ket? Would it lead to in­creas­ing the in­fla­tion? What would be the pros and cons of the de­ci­sion? Hence, Daily News Egypt in­ter­viewed a num­ber of ex­perts and im­porters to dis­cuss the is­sue, the tran­script for which is be­low, lightly edited for clar­ity:

The Fri­day state­ment ex­plained that non-es­sen­tial goods in­clude to­bacco prod­ucts, al­co­hol, pet food, and cos­met­ics. Other goods, such as mo­bile phones and com­put­ers which are ex­empted from cus­toms du­ties, goods in­clud­ing fur­ni­ture and shoes that are man­u­fac­tured lo­cally, and cars and mo­tor­bikes, will also be sub­ject to the new rate.

In­dus­trial and agri­cul­tural raw prod­ucts will still be im­ported at the dis­counted rate, ac­cord­ing to the fi­nance min­is­ter’s state­ment.

Ahmed Shiha, for­mer head of the Cairo Cham­ber of Com­merce’s Im­porters Di­vi­sion, told Daily News Egypt (DNE) that this de­ci­sion will neg­a­tively af­fect all the Egyp­tian eco­nomic sec­tors.

He con­tin­ued that this de­ci­sion has no ad­van­tages but only neg­a­tiv­i­ties, not­ing that the dif­fer­ence be­tween the av­er­age ex­change rate set by the CBE and the monthly fixed cus­toms ex­change rate will lead to an in­crease in prices of dif­fer­ent prod­ucts, which will sub­se­quently in­crease in­fla­tion rate.

“This de­ci­sion was not stud­ied well, and sent a mes­sage to the world that Egypt’s leg­is­la­tion and laws are not sta­ble. It also means that an­other in­crease in the dol­lar price is com­ing,” Shiha stated.

He elab­o­rated that the in­sta­bil­ity of leg­is­la­tion and laws neg­a­tively af­fects in­vest­ments in Egypt, as in­vestors will hes­i­tate to make a fea­si­bil­ity study that might be changed due to any un­ex­pected changes by the gov­ern­ment.

Shiha also called on the gov­ern­ment to pro­vide a clear clas­si­fi­ca­tion of es­sen­tial and non-es­sen­tial prod­ucts.

Pro­fes­sor of Eco­nom­ics at Cairo Uni­ver­sity and Head of the Egyp­tian Fo­rum for Eco­nomic and Strate­gic Stud­ies, Rashad Abdo, agreed with Shiha that the gov­ern­ment should pro­vide a clear clas­si­fi­ca­tion for both es­sen­tial and non-es­sen­tial prod­ucts.

Un­like Shiha, Abdo said the de­ci­sion will in­crease the state’s rev­enues that can be used to pro­vide more fi­nan­cial sup­port for poor peo­ple in Egypt.

How­ever, it will in­crease the cost price of some prod­ucts, hence im­porters will in­crease prices for end con­sumers and sub­se­quently in­fla­tion will in­crease.

We asked Abdo, if the Cen­tral Agency for Pub­lic Mo­bi­liza­tion and Sta­tis­tics (CAPMAS) cal­cu­lated the in­fla­tion rate ac­cord­ing to the es­sen­tial or non-es­sen­tial prod­ucts, he stated that in­fla­tion has to be cal­cu­lated based on the prices of all prod­ucts in the mar­ket in­clud­ing the nonessen­tial ones.

Abdo ex­plained that the gov­ern­ment made this de­ci­sion be­fore it would de­crease the cus­toms on cars, so the gov­ern­ment had to find an al­ter­na­tive to face that de­crease which could in­crease the bud­get deficit. About 90% of Egypt’s rev­enues comes from cus­toms and taxes.

Eco­nomic ex­pert Sherif El-De­mer­dash agreed with the pre­vi­ous ex­perts that the gov­ern­ment should clas­sify the es­sen­tial and non-es­sen­tial prod­ucts.

The gov­ern­ment’s clas­si­fi­ca­tion of es­sen­tial and non-es­sen­tial prod­ucts was ‘un­clear,’ giv­ing an im­pres­sion that the new cus­toms ex­change rate will be ap­plied to most of the im­ported goods.

El-De­mer­dash added that this in­crease is es­ti­mated at about 15% will reach about 25% due to some cus­toms pro­ce­dures.

He con­tin­ued that this 25% in­crease would be very ef­fec­tive, es­pe­cially in cap­i­tal goods.

He as­sured that this in­crease in the cus­toms ex­change rate will lead to a non-pro­por­tional in­crease in prices for end users, which will un­for­tu­nately lead to in­creased in­fla­tion.

Dis­agree­ing with the pre­vi­ous ex­perts, the Min­is­ter of Plan­ning, Hala Al-Saied, stated that this de­ci­sion will not neg­a­tively im­pact in­fla­tion.

She ex­plained to DNE dur­ing her par­tic­i­pa­tion in the third eco­nomic con­fer­ence for Al Ahram, that the rise in the dol­lar cus­toms ex­change rate will be ap­plied on lux­ury goods, such as caviar and shrimp, which will not af­fect in­fla­tion.She noted that cars will have a full cus­toms ex­emp­tion start­ing by the be­gin­ning of the year.

Ex­perts and im­porters call on gov­ern­ment to pro­vide de­tailed clas­si­fi­ca­tion for both es­sen­tial and non-es­sen­tial goods

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