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Cushioning economic reforms

While many austerity measures have been taken since 2014, the past six years have also witnessed the introduction of many ambitious social-protection programmes, reports Sherine Abdel-Razek

Sherine Abdel-Razek , Tuesday 9 Jun 2020
Cushioning economic reforms
Cushioning economic reforms
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When President Abdel-Fattah Al-Sisi came to office, the Egyptian economy was in the doldrums, with macro indicators showing slow growth potential, depleted foreign reserves, a weak pound, and widening gaps in fiscal and trade balances. 

Worn-out infrastructure as well as the sabotage of electricity pylons had made the lives of many Egyptians miserable, with poor services and power cuts becoming the norm.

The political turmoil that followed the ousting of the Muslim Brotherhood in the 30 June Revolution had given rise to protests that had paralysed the economy and led to the closure of dozens of factories and the laying off of thousands of workers.

Such indicators were reflected in the daily lives of millions of Egyptians and were manifested in a high unemployment rate of almost 13 per cent.

Al-Sisi promised things would get better, and from his first days as top executive he asked his supporters to tighten their belts during a transitional period in which tough austerity measures would need to be introduced.

Since then Al-Sisi has taken decisions that his predecessors never had for fear of social unrest, cutting fuel subsidies five times, increasing water tariffs, introducing a plan to phase out electricity subsidies, and implementing a 14 per cent value-added tax, all eating up large chunks of Egyptian household incomes.

However, the hardest hit came with the devaluation of the pound in 2016, with Egyptians faced with the fact that the currency had lost almost 50 per cent of its value, a fact translated in hikes in prices across the board.

The inflation rate skyrocketed to an unprecedented 33 per cent in July 2017, and while it has come down since, the prices of many commodities, especially food, have seen at least a 50 per cent increase.

The burdens did not get lighter with the introduction of increases in the prices of metro and train tickets. The two increases in the minimum wages of state employees from LE700 to LE1,200 and then to LE2,000 during the past six years did little to cushion the effect of such increases.

However, the bold reforms were accompanied by an unprecedented number of social-protection schemes aiming at mitigating the potential short-term negative impacts of the reforms on the poorest and most-vulnerable segments of Egypt’s population.

The efforts included expanding social security coverage and increasing the amounts on food subsidy cards.

In its efforts to make sure that food subsidies reach those who really need them, the ministry of supply introduced several changes to the system. In July 2014, the baladi bread subsidy system was reformed to stop problems that used to cost the state billions of pounds.

Bakery quotas for baladi bread flour were removed, and instead bakeries would have to purchase flour at market prices in any quantity. In turn, the government would cover all the production costs of baladi bread through direct cash transfers.

The old paper ration cards used by millions of Egyptian to buy subsidised food items were replaced with smart ones. These are now used to purchase commodities subsidised under the ration-card programme and to buy bread.

Each member of a family has a maximum daily quota of five loaves. Any unused bread allotment can be redeemed for other commodities subsidised on the programme. The value of subsidised food that card holders can buy per month was initially set at LE15 and then increased gradually to LE50 in 2017.

These changes in the system were warmly welcomed by almost 70 million beneficiaries of the ration-card system to the extent that the Ministry of Supply announced a plan to weed out those who do not need the subsidies, leading to rare protests last summer.

The Takaful and Karama (Solidarity and Dignity) social security programme is one of the government’s most successful social-protection projects. 

The programmes were introduced in 2015 with a loan from the World Bank. Takaful is a conditional cash-transfer programme that obliges benefiting families to send their children to school and to have regular checks at health clinics.

Karama assistance is given to elderly people and those with severe disabilities. Minister of Social Solidarity Nevine Kabbag said recently that the government expected to add 170,000 beneficiaries to the programmes in the coming period. This will bring the number of beneficiaries to 3.4 million families, or approximately 14 million individuals.

In October 2018, Al-Sisi launched the “100 million in Health” programme, a wide-ranging initiative to conduct comprehensive and free medical examinations for the Hepatitis C virus in addition to detecting non-communicable diseases such as diabetes and obesity.

The initiative has screened 50 million citizens for Hepatitis C and treated four million. It has also covered the screening of millions of women for breast cancer.

This was followed by the LE2 billion “Decent Life” initiative that aims to provide everything from decent housing to water and sewage networks. It will also provide health services and equipment for the handicapped, help needy brides enter marriage, and provide job opportunities through micro-projects.

Some 75 per cent of the LE2 billion allocated to it will be directed to Upper Egyptian governorates that are the poorest in the country.

One of the main achievements of the government’s reforms has been the universal health insurance that is now being implemented in the Canal governorates in a pilot phase with a view to covering the whole country by 2030.

The system provides those in need with full coverage of medical services in hospitals and health units free of charge.

Had it not been for these social-protection programmes, the number of the poor would have been double the current figure, said Hala Al-Said, a former social solidarity minister, when announcing the results of a survey measuring consumption, spending, and poverty rates in Egypt last year.

The figures revealed that the poverty rate had increased to 32.5 per cent in 2017-2018 from 27.8 per cent in 2015. This includes individuals living at below the now-adjusted poverty line of LE735.5 and was previously at LE482 a month.

The survey also showed that the average Egyptian household now makes LE58,900 a year, up from LE44,200 in 2015. Households also receive an average of LE2,000 in food subsidies a year, up from LE860 in 2015.

The government has increased spending on health and education significantly in absolute figures since 2014. According to Minister of Finance Mohamed Maait in December last year, government expenditure on health and education has been hiked by 82 per cent during the last five years, recording LE210 billion in 2019, compared to LE115 billion in 2014. 

However, this still falls short of promises, since according to the constitution introduced under Al-Sisi in 2014 the government is required to spend at least three per cent of GDP on healthcare and at least four per cent on education every year, increasing allocations to comply with international standards.

 

*A version of this article appears in print in the 11 June, 2020 edition of Al-Ahram Weekly

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