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Egypt: Food subsidies vs cash

Eliminating food subsidies could lead to social unrest, warn political parties

Gamal Essam El-Din , Thursday 23 Jan 2020
Subsidies vs cash
The government is considering replacing the food subsidy system with cash payments (photo: Reuters)
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Political parties have voiced concern over government plans to replace food subsidies with cash payments.

The Tagammu Party was the most vocal, warning the move could trigger street protests.

In a statement released on 14 January the Tagammu said the cabinet’s decision to consider eliminating ration card subsidies could undermine the lives of millions of poor citizens.

“If true, the step will anger millions who see the current government toeing the neo-liberal line of the International Monetary Fund {IMF],” said the statement.

“The economic reform programme agreed with the IMF in 2016 led to electricity, water and fuel subsidies being slashed, a move which made life very hard for poor, limited and even average-income classes,” said Tagammu leader Sayed Abdel-Aal.

“Yet instead of doing its best to alleviate the burden placed on those classes which bore the brunt of the reforms, the government wants to reduce subsidies further, turning the lives of millions to hell.”

Abdel-Aal said commodity and food subsidies offered to millions via ration cards have contained citizens’ anger over three years of economic reform. “Now the government is seeking to eliminate ration cards, potentially pushing citizens to protest on the streets in what could become the revolution of the hungry.”

Following a cabinet meeting on 9 January, Minister of Supply Ali Moselhi announced that the government is considering eliminating the food subsidy system and replacing it with cash payments.

Switching to cash payments will help save 30-35 per cent of the subsidy bill in the first year (LE26.5 billion), rising to 40 per cent in the second.

“The current in-kind subsidy system has many defects. It allows wealthy and financially comfortable classes access to ration cards and subsidised goods many of which then appear on the black market,” said Moselhi. “Cash payments will allow the government to ensure help goes to those who need it most.”

Moselhi’s statement triggered angry responses from MPs who warned in a plenary meeting on 12 January that the potential switch could have catastrophic consequences.

Parliament Speaker Ali Abdel-Aal described Moselhi’s statement as “provocative”.

“I vow that a shift from one subsidy system to another will be adopted only after discussion and dialogue with members of parliament,” he said.

Instead of responding to the anger of MPs, Moselhi said “the ration card system opens the door wide to corruption and misallocation.

“The switch to cash payments is important because it will ensure subsidies go to the neediest.”

On 15 January Moselhi revealed that while a full switch to cash payments is still under discussion, “we have already devised a new system for bread subsidies.

“Beneficiaries will receive cash payment to buy their monthly needs of bread, estimated at 150 loaves maximum per month. If they do not want to use all the money to buy bread they will then be able to use it to buy other goods listed on the ration cards.” Moselhi said the present system opens the door for bakeries to sell subsidised flour to “confectionery and pastry shops” at market prices, while “a new cash system will put a halt to black market smuggling and ensure that bakeries use all their subsidised flour to sell bread to ration card beneficiaries.”

Prime Minister Mustafa Madbouli indicated this week that adopting a cash payment system will require many steps.

“Many entities, including the ministries of finance, supply and internal trade, social solidarity, chambers of commerce, and parliament’s economic affairs and budget committees, will need to study the move and then coordinate on how and when the new cash system is implemented. There will have to be a trial run, in a limited number of governorates, at the end of which a report will be sent to President Abdel-Fattah Al-Sisi for a final decision.”

The parliamentary majority Future of Homeland Party said on 17 January that if the government does turn to cash payments,” it must first reinforce control of markets, make sure that payments are linked to inflation and limit them to essential goods only, primarily bread”.

Amr Ghallab, head of the Economic Affairs Committee, said the cash payments can be implemented only after a complete study is made.

“There must be a correct and reliable database that can identify those who are eligible. Mistakes in this respect could cause widescale public outrage,” said Ghallab.

Mohamed Zaki Abu Shadi, a former minister of supply, said “families with a monthly income less than LE10,000 per month should receive subsidies.”

He warned that “the Ministry of Supply triggered a sweeping popular backlash last September when it decided to strip many people of ration cards.”

“The hasty move caused a lot of embarrassment for the government, forcing President Al-Sisi to intervene and correct the mistake, putting 1.8 million citizens whom the ministry said they were ineligible for subsidies back on ration card list.”

Abdel-Fattah Al-Gibali, an economic researcher and former advisor to the minister of finance, warned in an article in Al-Ahram on 15 January that “in light of the social and economic challenges facing Egypt a switch to cash subsidies could be disastrous.

“The move needs a national dialogue. Ration cards are an effective tool for containing national anger over four years of economic reform and neo-liberal policies. The ration card system currently covers 90 per cent of families in Egypt, meaning any change to the system is a political risk.”

*A version of this article appears in print in the 23 January, 2020 edition of Al-Ahram Weekly.

 

 

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