Factories at Crossroads: Egypt's industrial sector between optimism, crisis    Al-Sisi, Türkiye's FM discuss boosting ties, regional issues    Russia warns of efforts to disrupt Trump-Putin summit on Ukraine    Rift between Netanyahu and military deepens over Gaza strategy    MIDBANK extends EGP 1bn credit facilities to Raya Information Technology    United Bank contributes EGP 600m to syndicated loan worth EGP 6.2bn for Mountain View project    Suez Canal Bank net profits surge 71% to EGP 3.1bn in H1 2025    Egypt's gold prices grow on Aug. 7th    Madbouly says Egypt, Sudan 'one body,' vows continued support    Egypt's govt. issues licensing controls for used cooking oil activities    Egypt signs vaccine production agreement with UAE's Al Qalaa, China's Red Flag    Egypt to inaugurate Grand Egyptian Museum on 1 November    Egypt to open Grand Egyptian Museum on Nov. 1: PM    Oil rises on Wednesday    Egypt, Uganda strengthen water cooperation, address Nile governance    Egypt, Philippines explore deeper pharmaceutical cooperation    Egypt's Sisi: Egypt is gateway for aid to Gaza, not displacement    Egypt, Malawi explore pharmaceutical cooperation, export opportunities    Egypt's Foreign Minister discusses Nile water security with Ugandan president    Egypt, Cuba explore expanded cooperation in pharmaceuticals, vaccine technology    Egyptians vote in two-day Senate election with key list unopposed    Korean Cultural Centre in Cairo launches folk painting workshop    Egyptian Journalist Mohamed Abdel Galil Joins Golden Globe Voting Committee    Egypt's FM, US envoy discuss Gaza ceasefire, Iran nuclear talks    Egypt keeps Gaza aid flowing, total tops 533,000 tons: minister    Egypt's EHA, Huawei discuss enhanced digital health    Foreign, housing ministers discuss Egypt's role in African development push    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Sisi launches new support initiative for families of war, terrorism victims    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



'Subsidise or die'
Published in Al-Ahram Weekly on 23 - 10 - 2003

Although subsidisation is mainly to blame for the growth of the budget deficit in recent years, food subsidies will be increased substantially this year. Gamal Essam El-Din reports
In its first annual conference last month, the ruling National Democratic Party (NDP) strongly recommended that the government allocate an additional LE1.6 billion towards food subsidies in this year's budget. The party conference defended this additional allocation as a necessary measure to protect citizens from the vagaries of economic liberalisation and the recent surge in prices precipitated by the falling value of the Egyptian pound.
This policy represents a major step back from the NDP's earlier economic philosophy, as espoused by its eighth congress in 2002. Until this year's conference, the NDP had called for rationalising subsidies as a necessary step towards reducing the budget deficit. Subsidies were to be gradually phased out and replaced by other, less burdensome policies aimed at enabling poor citizens to increase their incomes.
The dramatic turnaround in the NDP's position was affirmed by its chairman, President Hosni Mubarak. During a visit to the Governorate of Qena in Upper Egypt on 16 October, President Mubarak explained that several factors, in particular a rise in the global prices of food crops, led the government to approve a LE1.6 billion increase in food subsidy expenditures.
Finance Minister Medhat Hassanein announced on 14 October that the budget for 2003/2004 was being adjusted to allocate LE1.6 billion more to direct commodity and service subsidies. Subsidies in the budget take direct and indirect forms. The direct subsidies, primarily allocated to essential food supplies, housing and transport, increased from LE6.7 billion in the 2002/2003 budget to eight billion pounds in the 2003/2004 budget, raising the proportion of expenditures on direct subsidies from 4.7 to five per cent.
Last week's allocation, according to Hassanein, will increase the direct subsidies to LE9.6 billion (or 6.6 per cent of the budget). Indirect subsidies are estimated at LE16.7 billion, including provisions for below-cost or reduced-cost sales of butane gas, diesel and electricity.
On top of the LE26.5 billion total allocated for consumer subsidies are social subsidies, mainly in education and health. Including these with the figures for both direct and indirect subsidies, subsidies for 2003/2004 are a whopping LE81.1 billion, or around 55 per cent of fiscal expenditures.
The NDP's old guard accept the increased budgetary allocations for subsidisation as a natural part of the populist ideology and obligations of the NDP. These leaders strongly believe that subsidisation is a matter of national security for Egypt and political security for the NDP.
Although President Mubarak reaffirmed the NDP commitment to protecting limited-income citizens, he warned that "there will come a time when we will never be able to provide all of these subsidies. I want to ring alarm bells on the issue of subsidies because with the current runaway growth of population, the government will by no means subsidise all things to all people in the near future."
President Mubarak also pointed out that the growth of subsidies will immediately translate into a greater budget deficit. The budget deficit for 2002/2003 reached LE42 billion, 6.5 per cent of GDP, or 10.3 per cent including the loans from pension funds. This is a sharp rise from the last two years -- from 6.7 per cent of GDP in 2001/2002 and 7.4 per cent of GDP in 2002/2003.
Greater subsidisation is widely blamed for at least half of the recent growth in budget deficits. The rest is accounted for by assorted factors such as declining state income, greater spending on employee salaries, financial mismanagement and pervasive corruption.
President Mubarak's warnings about long- term subsidisation are supported by a new camp of NDP reformists, or the "future generation". This camp is led by Gamal Mubarak, the 39-year-old son of President Mubarak and chairman of the influential NDP Policy Secretariat, and comprised mainly of young, pragmatic businessmen and economists. Ahmed Ezz, a member of the NDP's Secretariat-General and chairman of Parliament's Budget and Planning Committee, Hossam Badrawi, the chairman of the NDP's Businessmen Committee and chairman of Parliament's Education Committee, and Mahmoud Mohieddin, chairman of the NDP's Economic Committee, are the foremost proponents of this school.
The "future generation" pragmatists argue that the reluctance of several governments over the last 25 years to find a coherent solution for the problem of subsidies has made it difficult to tackle. This camp also strongly believes that previous governments opted for more social subsidies at the expense of fiscal prudence and rational spending. Ahmed Ezz, addressing Parliament's Budget and Planning Committee last May, said that a quarter century of experience has shown that these subsidies not only strip the country of economic efficiency and aggravate the chronic budget deficit crisis, but also fail to serve their original purpose.
Opposed to Ezz are a number of private- sector businessmen, notably Mounir Fakhri Abdel-Nour, spokesman of the liberal Wafd party. Abdel-Nour believes that the NDP's slogan should be changed from the "Rights of Citizens First" to "Subsidise or Die". "Subsidisation is now a major NDP policy and it is not expected to relinquish it in the near future. To the NDP, tampering with this essential policy at a time when prices are rising all the time could cause a broad social upheaval," Abdel-Nour said.
Due to the importance of the subsidisation issue to economic and fiscal reform, the opposition has asked repeatedly that a special conference including a wide spectrum of economists be organised to debate its different aspects and find a radical solution to it. Hassanein, addressing Parliament last May, acknowledged that the government has been slow to reform the subsidy system. "Ahead of drawing up the 2002/2003 budget, [the government] was in fierce debate over the subsidy system. The government is determined that this system be a basic part of the second generation of fiscal reforms aimed at achieving greater liberalisation of the Egyptian economy," Hassanein asserted.


Clic here to read the story from its source.