In the latest series of subsidy cuts, the Ministry of Supply this week announced further price hikes for subsidised oil and sugar provided through the ration-card system. The price of sugar increased by 14.3 per cent to LE8 from LE7 per kg, while the price of vegetable oil increased by 20 per cent to LE12 instead of LE10 per 800ml. The price of vegetable ghee has also increased to LE12 from LE11 per 500g. The hikes have been effective since the beginning of this month. Minister of Supply Mohamed Al-Sheikh said that prices of sugar had been rising internationally over the past four months and that the government had increased the price at which it bought sugar from local farmers to LE620 per ton from LE400 last season.
Egypt imports about a million tons of sugar annually, or about a third of its total consumption. Al-Sheikh said during a TV interview last week that it had been difficult to sustain the subsidies on commodities, especially after increases in the amount allocated to individuals holding ration cards from LE18 to LE21 late last year in a move aiming at mitigating the inflationary effects caused by floating the Egyptian pound in November.
He said that a bottle of oil that used to be sold at LE10 in fact cost LE16, adding that despite the recent hikes in prices, sugar and oil were still being sold at below their production costs.
The government was providing subsidised goods at prices which were lower than prices on the market by some 25-30 per cent, he said. According to the ministry, 71 million people use government subsidy cards to buy essential food items. While the government increased the value of the food subsidies in the current fiscal year by nine per cent, it is also keen to find mechanisms to identify those who do not need these subsidies, eliminating them from the system. It is also trying to make sure that newcomers to the system are those really in need of it as it will exclude people with incomes exceeding LE1,500 a month or pensions of LE1,200. In October, the government decided to put the Armed Forces in charge of clearing the ration card database of ineligible recipients. In April last year, it revealed a plan to exclude nine million people from the food subsidies, including the deceased, those who have been abroad for a long time, and those holding multiple ration cards on the same natinal ID. Al-Sheikh further said that the government would try to compensate for high international prices by increasing local production, starting with further production of sugar from beets. But despite the increases in production of some 2.4 million tons, there would still be a gap between production and consumption, Al-Sheikh said. “Domestic sugar consumption is very high at more than three million tons a year,” he added.
This is not the first time the government has increased the price of subsidised sugar. Late last year, it increased sugar prices twice, the last being a 40 per cent hike when subsidised sugar prices were increased to LE7 per kg.
The new price hikes have enraged citizens and MPs alike, with the latter sharply criticising the government for hiking sugar prices three times over the past three months. Many people will not be able to manage as a result of the price hikes, they said, warning of a social backlash.
The decision has also angered many people who are already suffering from the price increases. Prices have increased significantly across the board as a result of the floatation of the pound. Inflation in December jumped to 24.3 per cent, compared to 20.2 per cent in November, reaching its highest point in at least seven years, according to figures from the Central Agency for Public Mobilisation and Statistics (CAPMAS).
“How can I cope with all these price increases, now that the government is backtracking on its promises to increase the social safety net,” asked Ahmed Kamal, the father of three children.
Kamal said that he could already barely make ends meet, and with the price hikes his purchasing power would shrink further.
Following the floatation of the pound, the government said it would work on strengthening the social security net in order to shield poorer people from the wave of price increases. However, it is also committed to economic reforms as part of a three-year $12 billion Extended Fund Facility from the International Monetary Fund (IMF).
Egypt received the first tranche of the loan, worth $2.75 billion, late last year after floating the pound and cutting fuel subsidies.
A delegation from the IMF is currently visiting the country to review progress on reforms, and it will discuss the consequences of the recent economic measures in preparation for a formal visit by an IMF delegation scheduled for next month, official sources told the Al-Shorouk newspaper this week.
They said the government was preparing a new set of austerity measures to discuss with the IMF that would include further cuts in fuel, electricity and food subsidies. However, there are voices in the government that are warning against such measures, fearing their social and economic consequences, according to the sources. Prices of electricity will indeed rise next July. The Ministry of Electricity's spokesman told Al-Shorouk newspaper that the ministry is repricing electricity following the increase in fuel prices but he did not give details on the new pricing formula. The Ministry of Electricity last hiked electricity prices in August 2016 for residential and commercial consumption as production costs have increased. The sources added that while the IMF saw that the government was heading in the right direction, it was also warning against any slowdown in implementing the agreed austerity measures.
The delegation's report on the progress of the reforms is a requirement for unlocking the second installment of the loan, supposed to arrive in April.
