Prime Minister Mustafa Madbouli called for a complete overhaul of Egypt’s subsidy system in a roundtable meeting with journalists in New Alamein city on 31 July.

“The state cannot provide costly subsidies indefinitely. The government has no choice but to phase out subsidies and gradually increase prices to narrow the budget deficit,” said Madbouli.

“We plan to increase fuel prices until we reach zero subsidies in this sector by the end of 2025. Subsidies allocated to fuel cost the state LE450 million a day and importing fuel products incurs huge foreign exchange bills.”

Fuel subsidies in the 2024-25 budget are expected to hit a record high of LE155 billion.

“It is a huge burden that no country can bear forever,” said Madbouli.

“No government wants to erode its popularity on the street. We are being forced to raise prices because of current economic conditions. We have to reduce the burden on the state.”

The plan, Madbouli explained, does not involve the complete elimination of subsidies. Instead, the government is examining ways to ensure subsidies are directed to those who need them most without harming the state’s finances.

The government recently moved to cut the subsidy bill. It introduced a 10-15 per cent fuel price hike at the end of July, increased metro and train fares a week ago, and oversaw a 300 per cent price hike on subsidised bread at the end of May.

Though Madbouli said the government is also working to cut electricity subsidies, he ruled out their full elimination for the time being.

“The Ministry of Electricity owes the Ministry of Petroleum LE16 billion in payment for gas and oil supplies yet was able to pay just LE4 billion. Subsidies ate up any remaining liquidity, leaving the treasury to shoulder the remaining LE12 billion.”

Resolving the ongoing problem of power cuts has already cost the state $1.2 billion. Madbouli noted that the “shortage of gas supplies has negatively affected fertiliser factories, reducing supplies to the market.”

Blaming ongoing conflicts in Ukraine and the Middle East for the difficult headwinds facing the Egyptian economy, Madbouli underlined how “the Suez Canal used to earn $800 million every month before the war in Gaza and we were hoping that this amount would soon reach $1 billion.”

“Now, due to tensions in the Red Sea, revenues have dropped to $300 million a month.”

Subsidies are expected to eat up LE636 billion in FY 2024-25, with bread subsidies alone costing LE135 billion, up from LE91 billion last year.

Economic analyst Mustafa Badra told Al-Ahram Weekly that reform of bread subsidies is of particular importance.

“Egypt consumes 8.5 million tons of wheat a year, of which we import between five and 5.5 million tons. The war in Ukraine led the price of wheat on the world market to surge to more than $300 per ton, vastly inflating Egypt’s food subsidy bill.”

Of the government’s decision to increase the price of subsidised bread last month from five to 20 piastres a loaf, Badra said the move marked “a beginning” and “we will see more moves to rationalise bread subsidies in the coming period.”

In his policy statement before the House of Representatives on 8 July, Mostafa Madbouli raised the possibility of replacing in-kind subsidies delivered via ration cards with cash payments, arguing the switch would make citizens rationalise their consumption of bread and help reduce the wheat import bill.

The National Dialogue’s Board of Trustees held a meeting on Tuesday to prepare the ground for discussions of subsidy reforms.

National Dialogue trustee and MP Talaat Abdel-Qawi the Weekly that before the National Dialogue begins discussing of the merits of cash payments versus in-kind subsidies it must first have access to detailed figures on food subsidy allocations and what is being planned in terms of cash payments.

“We also want data on the number of poor and limited-income households that will be eligible for cash payments,” said Abdel-Qawi.

Badra listed a number of factors that will have to be in place before any switch to cash payments.

“A comprehensive database listing which citizens are eligible for which subsidies needs to be in place. Then a poll should be conducted to find out which subsidy system citizens favour,” said Badra.

“We also need to thoroughly study the advantages and disadvantages of various subsidy systems and identify which offers the best protection for poorer citizens.”

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* A version of this article appears in print in the 8 August, 2024 edition of Al-Ahram Weekly