Egyptian Government Re-Examines Subsidy Access for the Poor, Addresses Economic Deficit

Written by Makula Dunbar

May 16, 2013

The Egyptian government has taken tentative steps towards reducing the roughly US$20 billion subsidy system that supporters say provides vital aid to the one-in-four Egyptians in poverty, and critics say is unsustainable and enriches the corrupt.

“Most of the subsidies do not go to the people who really need them,” said Osama Kamal, who until the 7 May cabinet reshuffle was petroleum minister.

The government plans a series of piecemeal reforms to revolutionize its decades-old subsidy system in a bid to rein in a runaway budget deficit, and adapt to the conditions of a $4.8 billion loan from the International Monetary Fund.

But as Minister of Supply and Internal Trade Bassem Auda said recently, the subsidy system protects at least eight million Egyptians against poverty, and any changes are highly sensitive.

The government wants to reduce the budget deficit to 5.5 percent in the 2016-2017 budget from 10.7 percent in the 2012-2013 budget, according to the Finance Ministry.

A high priority in the subsidy reform scheme is energy subsidies, which are estimated at 115 billion pounds ($16.8 billion), and bread subsidies, (Arabic) which are estimated at 21 billion pounds ($3.1 billion).

Manal Metwaly, an economics professor from Cairo University, says cuts will have a devastating effect on the poor: “The government says the subsidy system opens the way for corruption, but it doesn’t have to slash subsidies in order to fight corruption.

“The subsidies keep millions of people afloat, while commodity prices keep rising. This means that any change in the system can affect the lives of millions of people.”

What’s the plan to reduce bread subsidy corruption?

Subsidized bread is a permanent item on almost all Egyptian tables; it is a lifeline for the poor, but the system is also frequently abused.

Egyptians consume as many as 210 million loaves of subsidized flat bread every day, helping to make it the world’s largest wheat importer.

The government sells a subsidized loaf of bread at the nation’s more than 25,000 bakeries for five piasters (less than one US cent) whereas the production cost of the same loaf is more than 40 piasters (six US cents).