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Egypt to establish database for subsidies to needy: Finance Minister

Initiative part of cabinet effort to reduce smuggling, gradually cut subsidies and optimise state welfare expenditure

Ahram Online, Friday 6 Sep 2013
Ahmed Galal
Finance Minister Ahmed Galal (Photo: AO)

Six Egyptian ministries have agreed to cooperate to establish a unified database of citizens in a move designed to ensure state subsidies reach those in need, said Finance Minister Ahmed Galal via a press release on Thursday.

Egypt is currently introducing a new smart-card system for the distribution of subsidised fuel.

The cards, which are accessible to all citizens with a national identification number, are initially intended to curb smuggling, which officials claim eats up around 20 percent of subsidised fuel, rather than ration fuel.

The ministries of finance, petroleum, supply, interior, communication, and administrative development agreed on Wednesday to establish a committee to review and update the database covering the beneficiaries of state subsidies, especially smart-card users, to better target subsidies and reduce waste.

Egypt’s state subsidies for food and fuel consume over a third of public expenditure, amounting to LE146 billion in the fiscal year that ended last June. The universal system is criticised for being hugely wasteful.

“Ninety percent of the energy subsidies benefit Egyptians in the top 20 percent income bracket,” former minister of finance Samir Radwan told Ahram Online.

Past governments have struggled to implement subsidy cuts, which are deeply unpopular.

Despite pressure from the International Monetary Fund (IMF) to implement subsidy cuts to qualify for a $4.8 billion loan, former president Mohamed Morsi passed a law days before his ouster increasing total government spending on energy subsidies by LE20 billion ($2.8 billion).

The new cabinet, which has indefinitely postponed negotiations over the loan, nevertheless plans to gradually phase out fuel subsidies, which alone reached LE120 billion in the fiscal year which ended on 30 June.

In a conference call with Cairo-based investment bank Beltone Financial earlier this week, Galal reiterated the government’s intention to phase out energy subsidies.

Speaking in broad terms, the minister outlined a reform plan by which the gap between international and domestic energy prices would be closed over the next two to three years, with the government first targeting heavy industrial users across all sectors so that end-consumers would be the last to bear the brunt of reform.

A simultaneous reform of the petroleum sector would take place, added Galal, to optimise fuel utility and increase extraction.

But firstly, the smart-card system will be implemented in the next two to three months, the minister told Beltone.

The finance ministry is also considering a conditional cash transfer programme, an official told Ahram Online on Tuesday.

The programme would form part of a broader effort to achieve social justice by better targeting welfare benefits, and would help with subsidy reform, explained Mesbah Qotb, advisor to the finance minister.

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