Food subsidy system, market regulation to control inflation: Ministers

Ahram Online, Monday 7 Jul 2014

Ghada Waly and Khaled Hanafy
Minister of Social Solidarity Ghada Waly (L) and Minister of Supply Khaled Hanafy (Photo: AL-Ahram)

Egypt's government plans to counter the consequences of fuel subsidy cuts by providing affordable alternatives, as explained by the ministers of supply and social solidarity in an interview on Egyptian TV earlier this week.

According to the ministers, in order to curb the rising prices of basic food commodities, the government is competing with the private sector by producing staples and selling them at lower prices as well as expanding the list of goods available to ration card holders. Transportation tariffs will be controlled by regulating the market, monitoring bus stops, and increasing both public buses and metro lines, they added.

On Friday at midnight, the government of Egypt raised the prices of three widely used state-subsidised fuels -- 80 octane gasoline, 92 octane, and diesel fuel -- by up to 78 percent.

The move is part of a larger effort to rein in Egypt’s budget deficit to 10 percent of GDP in the 2014/2015 fiscal year by cutting LE44 billion in spending on energy subsidies, among other measures.

"Around 69 million Egyptians will have access to 20 subsidised goods listed in ration cards starting Sunday through 25,000 access points across the country," said Minister of Supply Khaled Hanafy.

This month, the government introduced a new ration card system providing an initial list of 20 commodities – among which are meat and poultry – expected to rise to 100 goods within a few months. The items on the list are offered at 20 to 30 percent discounted prices and supplied in collaboration with the state-owned Holding Company for Food Industries.

"In the new system, chicken, for example, is offered at LE14.5 as opposed to the non-subsidised price of LE22," said Hanafy in the interview.

Hanafy expects the impact of fuel price hikes on fruits and vegetable prices to be minimal, since their transportation cost would be raised by LE10 to LE15 per tonne, with the ultimate cost rise for each kilogramme thus limited to "a couple of piastres".

As the government plans to control inflation through the basic commodities it offers in state-run grocery stores -- which are 25 percent below market price -- Hanafy affirms that sales have indeed increased by 150 percent at some of these outlets.

For her part, Minister of Social Solidarity Ghada Waly went on to introduce the cabinet's strategy to alleviate the decision’s impact on the cost of transportation.

"We are raising the availability of public buses and increasing metro lines. The government will provide an additional 1000 buses before the end of the year," Waly said.

Cabinet spokesperson Hossam Gaweesh has announced that public transportation, including Cairo metro fares, would not be affected by the price hikes.

Fares for privately run transport services, such as microbuses and taxi cabs, are expected to rise by 2 to 7 percent, according to estimates released on Friday by state-run statistics body CAPMAS.

Egyptians, however, noticed otherwise on Friday morning, reporting much larger price hikes imposed by microbus drivers. Microbuses are a popular alternative to the over-burdened public transport system but are unregulated by the state.

Taxi tariffs will now start at LE3 as opposed to the previous LE2.5 and each kilometre will come to cost LE1.4 compared with LE1.25.

Waly stated that Egyptian households spend 46 percent of their income on food, less than 2 percent on energy and some 0.06 percent on electricity. Accordingly, the rich were the actual beneficiaries of fuel subsidies.

"Energy subsidies were the least efficient form of subsidies because – unlike with bread subsidies – the richest 20 percent were the largest beneficiaries," said Waly.

The government also removed subsidies for the highest two electricity brackets while maintaining a subsidy bill equivalent to LE120 million for the lowest three, as well as raising fuel prices to energy intensive industries by up to 75 percent.

Waly said that fuel subsidy cuts saved the government LE51 billion, which will be directed to: increasing the healthcare and education budgets by LE22 billion; a new scheme of wages for government workers starting at LE1,200; doubling the beneficiaries of social solidarity pensions to three million citizens at a cost of LE5.7 billion; raising the value of pensions by 10 percent at an LE9 billion cost.

The minimum wage scheme for the public sector is estimated to cost LE18 billion a year.

The minister of social solidarity also pointed out that 50 percent of property tax collections will be directed towards funding local councils and developing slums.

Egypt’s poverty rate has increased to reach 26.3 per cent in 2012/13 compared with 25.2 percent in 2010/11, according to CAPMAS.

Poverty remains predominant in rural areas, with the highest rates in the two southern Egyptian governorates of Assiut and Qena, at 60 and 58 percent respectively.

Around 5.6 percent of Egyptian families – currently 19 million nationwide – spend less than LE10,000 ($1,452) per year, while 6.2 percent spend more than LE50,000 ($7,259) annually.

Short link: