Egypt takes measures to offset side effects of economic reforms
Cairo - Egypt is trying to reduce public backlash against governmental economic reforms by increasing food subsidies and tailoring new social welfare programmes to help needy citizens, economists said.
“Public anger against the reform programme was inevitable but economic planners have been shrewd enough to avoid it by cushioning its effects, especially on the very poor,” said Yumn al-Hamaqi, an economics professor at Cairo University. “To some extent, this lowers the pace of reform but this is better than having a new revolution on the streets.”
Economic reform measures include floating the Egyptian pound, slashing fuel, electricity and water subsidies and introducing a value added tax.
The moves were designed to rescue the Egyptian economy, which was faltering. Foreign currency reserves had reached an all-time low and the government struggled to secure food imports.
The reform effort has, however, been very costly for the poor. Floating the pound led to a dramatic surge in the exchange rate of all foreign currencies. A US dollar, for example, trades for 17.70 Egyptian pounds; the exchange rate was 8.80 pounds before the November 2016 flotation.
Prices of commodities, most of them imported, shot up. The reduction in fuel, electricity and water subsidies increased monthly bills to unprecedented levels and led to a rise in transport costs.
Nonetheless, together with these aggressive measures, the government was keen to not alienating its citizens, 27.8% of whom were classified as poor in a recent survey.
Last July, the government raised food subsidies to $4.8 billion annually, from $2.6 billion. It increased the annual budget of social welfare programmes to $2.5 billion. The government also raised civil servants’ pensions 60%.
“These measures were instrumental in helping millions of people keep afloat as the pace of the reform harrowed and commodity prices continued to rise,” said Sherin al-Shawarbi, another economics professor at Cairo University.
Apart from increasing food subsidies, which benefit 70 million people registered in the national food rationing system, the government built tens of thousands of flats for slum dwellers.
A universal health insurance system is about to be implemented nationwide to cover the entire population for the first time despite funding problems. The system will exempt the poor from almost all charges and require only financially capable citizens to pay for medical treatment.
Economists said these efforts have largely focused on the poor, overlooking the middle class, which has borne the brunt of reforms.
“Some middle-class Egyptians have been impoverished by the reform because, unlike the very poor, they do not benefit from the food subsidies and they will not enroll themselves in social welfare programmes,” Shawarbi said. “This is why it is important for the government to consider the interests of these people as it moves ahead with the reform or they can be the force behind the next revolution.”