Egypt's poor families need permanent aid, subsidy system needs flexibility: Official

The finance ministry's head of the economic justice unit shares her vision to reform subsidies and to integrate the informal sector into the Egyptian economy

Egypt's newly appointed assistant to the minister of finance, Sherine Al-Shawarbi, said that the country's families living in poverty should benefit from aid, but the subsidy system needs reform to ensure those who don't need help aren't benefiting from it.
"I believe the government should not subsidise people who can afford a high living standard," Al-Shawarbi said in an interview with Ahram Hebdo. "It's evident some people can fall into poverty. The optimum is to create a flexible system."
In late November 2013, Finance Minister Ahmed Galal named Al-Shawarbi, a former World Bank economist and professor of economics at Cairo University his assistant for economic justice. Al-Shawarbi is now the head of a unit in the ministry responsible for developing the government's plans to implement economic and social justice.
The unit has chosen three topics to focus on: the social protection and subsidies systems, social insurance and pensions, and the informal sector.
"The optimum would be to create a subsidies system with flexible entry and exit points," she said. "That way, families who manage in a way or another to increase their revenue will make room for more needy families as state resources are limited."
According to Al-Shawarbi, flexibility will lead to a more effective protection system that avoids trapping some people in poverty.
She said assistance offered to the needy can take different forms such as cash or medical and education services.
"The aim is to develop the social solidarity system with better targeting," she said. "We can also see how we can help a member of the family in a way that allows him to pull his family out of poverty."
Al-Shawarbi believes the governmental social solidarity system is one the most efficient social programs in Egypt. It offers less than 1.5 million families in need with a monthly allowance of LE300 ($42).
She regrets, however, that the allocations for this programme do not exceed 0.2 percent of GDP, while energy and food subsidies reach 10 percent of GDP.
Energy subsidies are often described by officials as benefiting wealthy car owners and remain out of the reach of the poorest, while costing the state a quarter of its budget.
"Even though we can benefit from other countries' experience, we cannot simply adopt their system because each country has its specificities," she said.
As for the the informal sector, Al-Shawarbi believes simplifying procedures of registration and licensing as well as legal reform are the best ways to encourage small businesses to grow and join the formal sector.
"The informal sector is overwhelmed by countless restrictions and the business environment does not favor it," she said. "Its formalisation will facilitate access to finance and it will allow small entrepreneurs to cooperate with larger plants and therefore grow and create more jobs," she said.
The economist insists that the government's aim of encouraging formalisation is not merely to collect more taxes, as some speculate. "The final vision is yet to be clear, but it is possible that we consider providing entrepreneurs willing to formalize a tax exemption for a given period in order to enable them to grow."
To address the problems of the informal sector, Al-Shawarbi believes it is necessary to solve issues with social security and pensions that encourage neither bosses nor employees to join the system.
"We must reform the law on social insurance," she said. "Funds must be like a piggy bank, that is to say, allows the employee to participate when it has the means, but exempt when unemployed. It should also link social insurance to health insurance."
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