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Egypt News

Egypt’s ‘War on Subsidies’ Could Turn into a War on Poor

Published 2014-07-31 09:05:38| Amwal Al Ghad English

Under pressure from western powers and international lenders and investors, the Egyptian government is waging a “war on subsidies” that critics say could become a “war on the poor”, who make up 40 per cent of the population, the Irish Times reported. When subsidies on fuel were slashed by as much as 78 per cent this month, economists predicted a 15 to 20 per cent hike in food prices due to higher fuel costs borne by farmers, who need diesel to pump water from canals into their fields, and hauliers transporting produce from the countryside to urban centres. In a bid to mitigate the impact of cuts on the needy, the government has added meat, chicken, fish, pasta, lentils, beans and dairy products to the list of subsidised foodstuffs, which already included rice, sugar, tea, flour, oil and bread. Those eligible receive small cash grants via “smart cards”, enabling them to pay less for listed commodities. While prices have been reduced by 30 per cent at 25,000 grocery stores across Egypt, inflation could reduce the impact of the cash grants and list expansion. Limitations of scheme The scope of the smart-card scheme could be limited to 25 to 30 per cent of the population in urban centres because Egypt’s 5,000 villages do not have outlets that can be incorporated into the system. Smart cards also require an efficient, clear administration, which Egypt does not have. Egyptian prices for petroleum products have been among the lowest in the world for decades. Since energy prices have not been raised to meet the soaring costs of crude imports, energy subsidies have amounted to $100 billion (€75 billion) over the past decade. It is estimated that Egypt could save $6 billion to $7 billion a year by eliminating these subsidies. A plan to raise the price of electricity over the next five years could also cut energy costs substantially. Main beneficiaries The poor have never been the major beneficiaries of energy subsidies and may miss out this time round. Eighty per cent of those gaining from cheap petrol and power have been manufacturers, firms, and wealthy and middle-class Egyptians who own vehicles, have electricity at home and work, and can afford to run generators during all-too-frequent outages. A businessman consulted by The Irish Times said the cuts were long overdue and should discourage extravagance. “I had hoped the cuts would be larger. We waste so much petrol and power.” Critics of the initiatives argue that the government has not properly educated the public about the new measures and that it must introduce complementary legislation to protect wages, particularly for the lowest paid, and counter inflation. Multinational firms welcomed the cuts in fuel subsidies, which could improve Egypt’s prospects of paying for expensive imports of petroleum products. However, Egyptian prime minister Ibrahim Mehleb said savings would be used for health and education projects. Newly installed Egyptian president Abdel-Fattah al-Sisi, the former army chief, has pledged to reduce the country’s $115 billion budget deficit, the largest in Egypt’s history, from 12 per cent to 10 per cent over the next fiscal year. According to economists, between 75 per cent and 90 per cent of the budget is spent on subsidies, salaries and interest payments on debt, while the rest is invested in health, education and infrastructure. The country’s growth rate is 1.2 per cent, while its population is expanding at 2.9 per cent, putting increasing pressure on crumbling infrastructure and faltering services. The authorities have been compelled to tackle subsidies head on by the economic turbulence caused by the 2011 uprising and Egypt’s need for external financial aid. Previous governments shunned the issue, fearing a backlash. In January 1977, hundreds of thousands of Egyptians demonstrated against an end to subsidies on rice, flour and cooking oil that had boosted food prices by 50 per cent. At least 79 people were killed during the “bread riots”, which threatened the regime of then president Anwar Sadat, who began the transformation of Egypt’s economy from a socialist command model to a free market, a process continued under his successor, Hosni Mubarak, who was ousted by an uprising in 2011. For the time being, Egyptians seem to be prepared to go along with the new government’s programme. But if they do not soon see improvements there could be mass protests in spite of the harsh crackdown on dissent. Sisi has called for temporary sacrifices and promised benefits within two years. He has to deliver by this deadline. Analysts argue that economic reforms must be accompanied by political and institutional reform if the country is to succeed. So far, Egypt’s post- Mubarak rulers, dominated by the army and remnants of the Mubarak era, have ignored the uprising’s demands for “bread, freedom and justice”, and refused to carry out reforms. As one commentator said: “The regime was decapitated when Mubarak fell, now the regime is growing a new head.”
International News
China should set an economic growth target of 6.5-7 percent for 2015 and refrain from stimulus measures unless the economy threatens to slow sharply from that level, the International Monetary Fund said on Thursday. Most of its directors hold that view, though some feel that an even-lower growth target is appropriate, the IMF said in the conclusion of its annual Article IV economic consultation with China. "Regarding the growth target for 2015, while most directors concurred that a range of 6.5-7 percent would be consistent with the goal of transitioning to a safer and more sustainable growth path, a few other directors considered a lower target more appropriate," the IMF said. The IMF repeated its projection that the economic growth would dip to 7.4 percent this year, and decelerate further to 7.1 percent next year. The IMF cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world's second-largest economy would grow 7.5 percent this year, in line with Beijing's official target, and 7.3 percent next year. Most Chinese government economists, however, doubt Beijing would slash its growth target to below 7 percent next year for fear of undermining financial stability and market confidence.
Israel pressed ahead with its Gaza offensive saying it was days from achieving its core goal of destroying all Islamist guerrilla cross-border attack tunnels, but a soaring Palestinian civilian toll has triggered international alarm. Prime Minister Benjamin Netanyahu's security cabinet on Wednesday approved continuing the assault launched on July 8 in response to a surge of rocket attacks by Gaza's dominant Hamas Islamists. Israel also sent a delegation to Egypt, which has been trying, with Washington's blessing, to broker a ceasefire. A military source said some 16,000 reservists were being called up at short notice in the coming hours to relieve a similar number who would be stood down. Gaza officials say at least 1,361 Palestinians, most of them civilians, have been killed in the battered enclave and nearly 7,000 wounded. Fifty-six Israeli soldiers have been killed in Gaza clashes and more than 400 wounded. Three civilians have been killed in Palestinian shelling in Israel. U.N. Secretary-General Ban Ki-moon was incensed on Wednesday at the deaths of at least 15 Palestinians among thousands sheltering at a school whose U.N. administrator said appeared to have been hit by Israeli artillery.