Egypt takes measures to offset side effects of economic reforms

A universal health insurance system is about to be implemented nationwide to cover the entire population for the first time despite funding problems.
Sunday 14/01/2018
People cover themselves from sun as they wait to buy subsidised food contributed by the Ministry of Defence and Military Production of the Egyptian Armed Forces in Cairo

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.”