Cash subsidies may be a way to avoid the setbacks of the current food subsidy system but implementation is not easy. Niveen Wahish listens in to experts Expenditure on subsidies reached new heights in this year's budget (2011/12). The government has earmarked LE22.4 billion in the 2011-12 fiscal year to make consumer goods more affordable for the population. Around 65 million currently own a ration card by which they receive subsidised food items. It does not seem to be enough though. The ever increasing prices of commodities are eating away at the citizens' ability to meet their basic needs, says Omnia Helmy, lead economist at the Egyptian Centre for Economic Studies. Let alone the inefficiencies in distribution. In a study released this week Helmy cites some figures: 28 per cent of food subsidies did not reach those who deserve them in 2009. The population of the northern part of the country receive 60 per cent of the subsidised bread despite the fact that 95 per cent of the poorest villages are located in the south. Helmy was addressing a seminar organised by the Social Contract Centre. Egypt comes as one of the highest spenders on subsidies with 24 per cent of its public spending going to subsidies, equivalent to eight per cent of GDP, according to 2009 figures. Helmy suggested that cash subsidies could help overcome many problems related to food subsidies such as inefficiency of distribution and waste. She proposed that cash subsidies should go to poor families whose income falls below a certain level, and that there has to be a certain commitment by these families to put their children in school. Helmy said that the experience of other countries suggested that the sum of cash can be decided based on the average spending of families on basic commodities as in the case of Mexico. It could also be one eighth of the minimum wage as the case in Jamaica or it can be 30 per cent of the cost of a basket of basic goods and services that the poor consume, as the case in Colombia. She added that it should also include the expenses for education and health and should favour females. It should also be modified to meet increases in inflation rates, Helmy stated. But while it all sounds ideal, the system does have its setbacks. For starters it needs resources. In fact, as Hania Sholkamy, research associate professor, at the Social Research Centre, the American University in Cairo, pointed out to seminar participants that a pilot cash subsidy system is already in place since before the revolution and 25,000 families have been registered to receive LE250 per month but currently there are no resources to provide for those families. Another obstacle, according to Helmy, is the high administrative cost. And if the cash subsidy is too high it might discourage those poor families from seeking work. Or it can be collected by those who formally do not have a job but are self employed or working in the informal sector. To overcome these problems, Helmy said that families have to eventually graduate from the system as their situation improves. And there has to be a system whereby families are better targeted. In that regard, Heba El-Leithy and Dina Armanious, Cairo university economics professors, presented to seminar participants a way to pinpoint the most needy. A study that they conducted on the population who own ration cards had shown that 23 per cent of those who are eligible to have a ration card do not own one. And that 64 per cent of those who own a ration card are not eligible to it. This, according to them, shows that eligibility criteria are not strictly abided by and that data about the beneficiary families is not updated regularly. Their study is based on the Income, Expenditure and Consumption survey of 2008/09. Their study showed that only 17 per cent of total food subsidies are going to the poorest one-fifth of the population while 43 per cent are going to the richer two-fifth of the population. To overcome this problem they suggested targeting beneficiaries by what they called "Means Testing" to determine whether or not a family is eligible for help. The two researchers suggested designing a questionnaire that seeks information about the head of the family, the living conditions, income from other sources, size and nature of family, ownership of white goods and geographical location. Their study showed that with this method those most in need can be better specified. But they acknowledged that this is not a method to be used in times of crises such as the case now. "In times of crises faster and more efficient means are needed to reach those most hurt," said El-Leithy.
