The government's plans to reform the subsidy system is stirring controversy, Mona El-Fiqi investigates While the government is keen to assert that it is committed to continue the subsidy programme but through a different distribution system, consumers fear the system will be phased out. Few weeks ago President Hosni Mubarak, in the opening of the new parliamentary session, said the programme should be regulated to guarantee that subsidies reach the people who need them most. Official government announcements about subsidies are taken very seriously by consumers. Millions enjoy direct subsidies of essential foodstuffs. The government also provides indirect subsidises for education, healthcare, transportation and energy for tens of years. Both direct and indirect subsidy cost the government's annual budget LE100 billion. In a meeting held on 29 November, Safwat El-Sherif, secretary-general of the ruling National Democratic Party (NDP) strongly denied allegations that the government intends to phase out subsidies. El-Sherif asserted that the government is keen to subsidise essential products. A ministerial committee, formed recently including ministers of social solidarity, trade and industry, investment, finance and administrative development, headed by Prime Minister Ahmed Nazif met last week to set a plan providing a number of alternative systems for the subsidy. The committee suggested conducting a study, with the participation of political parties, non- governmental organisations, chambers of commerce and the media to sound their views on subsidy reform. Moreover, a database for 17 million families is currently being compiled by the government. Ali Moselhi, minister of social solidarity, announced that the ministerial committee has reached three fundamentals: the first is that the government will continue to provide both direct and indirect subsidies and is considering the addition of new beneficiaries; the second is that new regulations are needed to ensure that subsidies reach those who need them most; the third is that the government does not have a clear vision of subsidy reform but is offering a group of alternatives to achieve social justice. Experts agreed that the current subsidy system should be developed and new instruments should be used to guarantee that subsidies reach the poor. However, experts have different views concerning these instruments. Some believe that a cash subsidy system might be more viable, while others prefer providing the poor with subsidised products and services. Doha Abdelhamid, professor of finance at the American University at Cairo (AUC) said that the current subsidy system needs to be developed seriously. "It is an obsolete programme but it is not something that can be changed overnight." Abdelhamid explained that as a result of Egypt's transformation from a closed to an open economy was the appearance of a new category of citizens who were added to those under the poverty line ($2 for an individual per day according to international criteria, while some beneficiaries of the current system are no more in need of subsidies. "So the poor people representing 20 per cent of Egypt's population need to be financially supported by a new balanced subsidy system," Abdelhamid said. According to her, Egypt can follow the successful programme applied in Latin American countries. This new system should include all human development indicators and it should be applied after conducting a comprehensive survey for the poor people in all of Egypt's governorates. Abdelhamid explained that the current system has many defects. She said that when the cabinet's Information Decision Support Centre conducted a survey on the current system which provides subsidised foodstuff through ration cards, people complained that they did not get the chance to choose their favourite products and that the quality of products was bad. The new system suggested by Abdelhamid should not only provide subsidised products and services but it should also help the poor improve their living standards. The system which can be applied on a minor scale before being generalised, depends on providing cash on a monthly basis, which would be provided only if certain conditions are met, such as their children joining the school or the mother making an annual health check-up. Moreover, the husband can be helped to get an easy-term loan from the Social Fund for Development to start a new enterprise to his living. Abdelhamid added that the family should be revisited every three years to find out if their standard of living has improved and if so the subsidy could then be cancelled. "This programme aims at helping the poor escape poverty and earn their living in a better way," added Abdelhamid. Moreover, she said that the government should announce the details of its new subsidy programme as soon as possible since the delay raises fears and doubts among the public. Some experts strongly defend the idea of providing subsidised products and services to the poor. Hamdi Abdel-Azim, professor of economics and former president of Al-Sadat Academy for Administrative Sciences said that he is against the cash subsidy programme. "If the government decides to apply this programme the result will be an increase in inflation rates since prices will be left completely to supply and demand," Abdel-Azim said. According to Abdel-Azim the price of a loaf of bread could rise from five piastres to 30 piastres and so the cash subsidies provided to the poor will not be useful. Abdel-Azim admitted that the current system has many irregularities which enable the rich to benefit from subsidies. Reforms are needed to ensure that this no longer happens. For example, Abdel-Azim suggested that the government can control the sale of subsidised bread to the poor. The bakeries should be responsible only for baking bread while a well- controlled authority can handle selling the bread to guarantee that subsidised flour is sold to the poor. While experts have various views regarding the subsidy system, consumers agreed that subsidised goods and services are better. Many families prefer to keep the subsidy in form of essential foodstuffs provided monthly by a ration card. Reda Mahmoud, a 60-year-old housewife said she prefers to take subsidy as essential foodstuffs. "Prices are in continuous rise so the cash provided by the government will never be enough to buy the same goods at the market price," she said. "For example, cooking oil is currently provided by the ration card at LE1 per kilo while it is sold at LE8 per kilo in a supermarket. When I get a cash subsidy and prices are left to supply and demand, I will be obliged to buy cooking oil even if it is sold at LE20 per kilo." Mohamed Ali, an employee at a public state company and a father of three children, said that he is against the cash subsidy system. Ali believed that the cash whatever its amount will not be enough, and he would then lose the indirect subsidy for education and other services.
