For many experts, it may be premature -- if not risky -- to shift to cash subsidies. Sherine Nasr gathers the opinions on the subject For the past four decades, "subsidies" has been the prompt answer provided by the government to ease tension among the poor and make up for policies that have failed to alleviate poverty. With a population approaching 88 million and growing at a pace of 1.2 million every year, subsidies have become an unbearable burden. Expenditure on subsidies, particularly on energy and food, is eating up a considerable portion of the state budget, leaving little to spend on growth enhancers such as infrastructure, investment, education and health. The latest arguments on whether the government should switch to cash subsidies instead of the existing system based on subsidy in kind has awakened fears that the government might be slowly but surely withdrawing its subsidy system at large. "The poor are the first to pay the price of development and the least to benefit from its fruits," said Nader Noureddin, professor of soil and water sciences at Cairo University, adding that giving subsidies by cash is a risk that the government should not take at present. A study released in March by the Cabinet Information and Decision Support Centre (IDSC) about the state of the poor in Egypt revealed that 78 per cent of the poor in Egypt are concentrated in rural areas and that the poverty rate has increased to 21.5 per cent in 2009 compared to 19 per cent in previous years. "We should not overlook the fact that peasants in the 1950s and 1960s sold their crops at rates lower than those on the international market to support the internal market," said Noureddin. He added that the government should not hastily shift to cash subsidies before it deals with various loopholes in the current system, so as not to endanger the majority of the vulnerable classes. The different stages subsidised bread undergoes before it reaches the consumer are a good example of how a lack of vision and conflicting interests within governmental bodies may dissipate a considerable tranche of a subsidy before it reaches the groups it targets. Egypt is the second largest importer of wheat and bread. "The gap in wheat production is estimated at 55 per cent. Egypt wheat imports are estimated at LE20 billion per year," said Noureddin. He added that a notorious example of mismanagement is to buy the bulk of wheat imports from the US, because it is $1 less than that of France while shipment costs are fivefold higher. The fact that locally produced wheat is not sold at international market prices has discouraged farmers from growing wheat in favour of more profitable crops, such as rice. In the meantime, selling flour at two different rates -- a subsidised rate for local bread bakeries and another for hotels and restaurants -- has caused many market distortions and helped create a black market. In the new subsidies system, cash allocations for bread have been defined at almost LE13 per person per month. "This is hardly sufficient, because bread represents almost 40 per cent of the daily dietary intake of an Egyptian," said Noureddin. One suggestion is to reallocate subsidies to eliminate present rigidities in the system. According to Sherif Fayad, professor of agriculture economics, food subsidies present but a moderate percentage of the total subsidy allocations in the budget. "So what is the hurry to eliminate them while the redistribution of these allocations can prove more effective?" he asked. Fayad was referring to the fact that subsidies on energy, estimated at LE67 billion in the 2009/10 budget, consume up to 45.9 per cent of total budget allocations for subsidies. "It is more vital to rationalise subsidies on energy rather than eliminating food subsidies." Prime Minister Ahmed Nazif was quoted earlier this week as saying that subsidising energy for industry would not exist by 2012. Noureddin notes that Egypt does not come on top of the list of Arab countries in providing subsidies. "Syria and Jordan are two economies of a smaller scale than Egypt, and they come at the forefront of Arab countries providing subsidies with 2.1 per cent and 1.8 per cent of their GDP respectively, followed by Egypt with 1.3 per cent of GDP."
