Subsidies on basic commodities remain a touchstone issue in Egypt with so many on or under the poverty line, Mona El-Fiqi reports The issue of subsidies floats contentiously to the surface every year when the government prepares its annual budget. This year, the controversy was even more heated after the subsidy bill grew to more than 25 per cent of the total budget, a sizable burden on an already strained treasury. As the government ponders whether to reduce or even cancel subsidies altogether, millions of people living under the poverty line continue to be convinced of their right to subsidised goods and services. The subsidies, including social grants, cost LE115.8 billion in the draft budget of fiscal year 2010/2011, which was approved by the cabinet in March, compared to LE95 billion in 2009/2010. There is a general agreement, in the media and among political parties, that the current system of distributing subsidies is inefficient and corrupted, the result being that many goods and services do not reach the people who need them most. According to study entitled, The Public Budget and the Egyptian Citizen conducted by Al-Ahram Centre for Political and Strategic Studies, 20 per cent of the richest strata in society get 28 per cent of the total subsidies while the poorest families get 16 per cent. One of the important components up for reconsideration is subsidies on energy products. According to official figures, subsidies on energy products reached LE66 billion in 2009/2010 constituting around 60 to 70 per cent of the total volume of subsidies which represent 25 per cent of total expenditure in the state budget. Abdel-Fatah El-Gebali, deputy manager of Al-Ahram Centre for Political and Strategic Studies said that energy subsidies is a burden to the budget. He pointed out that gas oil subsidies alone costs LE31 billion. El-Gebally further pointed out that subsidies under the current system hardly targets those in need. A good example, he said, is gas oil that is sold at the same price to five-star hotels and farmers alike. According to El-Gebali, while eliminating subsidies on that product is difficult since it is vital for farmers, selling it at two different prices will certainly create a black market. Nevertheless, many have been advocating the need that subsidies spent on energy could be better directed to other sectors, such as health and education, which are more significant to the majority. The first step in that direction is the government's plans to stop subsidising energy sold to the industrial sector by 2011. The government admits that the current subsidy system as a whole has many loopholes. A study conducted by the Cabinet Information and Decision Support Centre (CIDSC) explained that beneficiaries of ration cards that provide subsidised essential food commodities to 63 million people are facing many problems. According to the study, beneficiaries complain of substandard quality and quantity of products distributed via ration cards. They also complain that they are not allowed to add their children onto their cards and that they are treated badly at commodity outlets. "I have to go to the grocery shop two or three times to get my quota because there is no clear working hours announced by the outlet," says Ahmed Mahmoud, a government employee. Mahmoud added that the quality of the subsidised foods is not good compared to other goods in the market, but he conceded that prices are cheaper. In response to these problems, the government suggested changing the present subsidy system into a cash subsidy system, but according to a questionnaire conducted by CIDSC, 64 per cent of people refused the idea. Soheir Adel, a 62-year-old widow, says: "I prefer to get commodities than to take money, which can be spent on many other things and I will still need to buy food. Prices in the market are always moving up; the cash subsidy will never catch up with price increases." Experts agree that a cash subsidy system is easier said than done. Abdel-Fattah El-Gebali, deputy manager of Al-Ahram Centre for Political and Strategic Studies, says that many questions arise when talking about cash subsidies: how the government is going to determine who needs the subsidy in the society, how much will be provided per person, and how the government could guarantee that the subsidies would be directed to those who really need it. "Higher inflation rates are one negative result we have to face if cash subsidies are applied," El-Gebali says. "It is a complicated issue since there are some services on which a cash system could not be applied, such as electricity and transportation." Ahmed Saqr Ashour, professor of management at Alexandria University, agrees. Ashour blames the government for implementing policies during the past 35 years that led to the increase of poverty rates. Ashour accuses the government of not targeting the main issue, which is poverty reduction. He recommends that the government apply a package of policies that deal with corruption, monopolies and uncontrolled markets. Privatisation has also increased the number of poor. "To fight poverty is key, and an indirect solution to the huge subsidy bill, but the government gives priority to funny things such as using electronic ration cards or moving into a cash subsidy system, to avoid addressing its inefficient control over the markets," Ashour says. He adds that it is an unsuitable time to think about change in the subsidy system since the economy is still suffering the negative impact of the global financial crisis. "It is unfair that the government is thinking about reducing subsidies for the poor while it continues to provide tax reductions and exemptions to investors, subsidised energy for huge factories, and financial assistance to exporters at the same time," Ashour says. El-Gebali agrees that the government should reconsider some policies, such as current financial assistance provided to exports that increased from LE158 million in 2001 to reach LE1,528.4 million in 2007. El Gebali believes that raising the minimum wage is important in order to help people cope with changing living standards. "This minimum level should be reconsidered on an annual basis according to the inflation rates announced by the Central Agency for Public Mobilisation and Statistics," El-Gebali says. According to El-Gebali, in the long term economic reform should focus on high growth rates while in the short term the continuity of the subsidy policy is important but its performance should be upgraded. Filing the gap between production and consumption of foodstuffs could be achieved by rationalisation, according to El-Gebali, which is better than importing.
