With fiscal pressures stemming from a challenging global context growing, Egypt faces the double challenge of improving social outcomes while preserving fiscal discipline.
As a part of its technical assistance to Egypt, the World Bank this week launched the Egypt Public Expenditure Review for the Human Development Sectors, an assessment of government spending on human development and social welfare.
From food subsidies, ration cards schemes, and programmes to provide affordable housing to new poverty-targeting initiatives like Takaful and Karama, Egypt has a wide array of social safety schemes. Yet the overall trend in public spending, according to the review, is of low allocation to the social sectors “leading to poor investment in human capital and dissatisfaction with public services”.
Expenditure on non-social sectors, noted the review, “increased from 45 per cent of total spending to around 66 per cent between 2009 and 2020, while that of the combined social sector has declined by 20 per cent, from 54 to 34 per cent.”
Spending on health and education remains low compared to peer countries and has consistently failed to reach the levels stipulated in the constitution. The dilemma is compounded by rates of population growth and demographic changes. According to the report, rapid population growth has negatively impacted student-to-teacher, student-to-classroom and beds and physicians-to-population ratios among others.
As people live longer — the old-age dependency ratio expected to increase from 16 per cent to 20 per cent in less than ten years — the health sector faces additional challenges with no extra funds allocated.
Of the funds actually allocated in the 2020-21 budget to education, a staggering 69 per cent of the total went on paying salaries. In the health sector the figure was 45 per cent. The figures do not, however, mean workers within either sector are paid well. Low pay forces teachers to seek second jobs in private tutoring and 80 per cent of doctors work in both the public and private sectors, while many seek work abroad. The result is an acute shortage of schoolteachers and falling numbers of physicians.
Teacher and classroom shortages, says the review, are undermining the quality of the learning environment at the pre-tertiary level, while increased enrollment in higher education has not resulted in the additional funding needed to sustain public universities and support research.
Affordability remains a major barrier to accessing health services. Out-of-pocket (OOP) payments by users exceeds 60 per cent of health spending, among the highest globally, and a high proportion of the poor chose not to seek care because they are unable to shoulder the expense. Care in public health facilities is also compromised by staff shortages, poor drug supply chain management and drug stock-outs. Tellingly, the bed occupancy rate in public hospital has remained below 50 per cent since 2010.
The review also sheds light on social assistance programmes. The sector has evolved significantly in the last decade with the introduction of initiatives like the Takaful and Karama projects which make cash transfers to poor families conditional on their sending their children to school and having regular health checkups. The review noted, however, that while in 2013 public expenditure on social protection programmes accounted for around a third of total government spending, the phasing out of energy subsidies in recent years has not been followed by a reallocation of the large budget savings to alternative social protection schemes such as Takaful and Karama.
The report cites a number of studies that have shown that cash transfer programmes have proven effective in reducing poverty and breaking intergenerational cycles of poverty and recommends expanding targeted cash transfers to cover all eligible poor households. It suggests raising funding for such programmes from the 0.3 per cent of GDP in the 2021 budget to 0.4 per cent, allowing coverage to grow from the 3.4 million households currently benefiting to five million.
The report also shed light on the Forsa (Opportunity) cash transfer initiative, an economic empowerment programme that provides skills training to Takaful and Karama beneficiaries. The programme is currently being piloted in eight governorates, covering 50,000 households, with plans to further scale up the program in both urban and rural areas.
Food subsidies absorbed 1.4 per cent of GDP — more than 32 per cent of overall social assistance spending — in fiscal year 2020. An estimated 72 million individuals benefit from subsidised bread, and 64.4 million benefiting from other food subsidies via ration cards. The report recommends reforming the system including by gradually moving from food vouchers to cash while strengthening monitoring systems and closely tracking supply chain, procurement, storage and transportation. It also suggests using financial instruments such as options and futures to reduce exposure to market volatility and protect the budget from risks associated to large price increases in staples such as wheat.
The report highlighted the difficulties in assessing the efficiency of Egypt’s social housing programme which, in addition to an annual budget allocation of 0.4 per cent of GDP in 2020, also receives indirect subsidies from off-budget entities like the New Urban Communities Authority (NUCA) through the provision of land free of charge, and the financing of utility infrastructure.
Social housing, says the report, needs to be revisited and reassessed due to its “high costs, unmeasured indirect subsidies and uncertain allocative efficiency compared to other programmes that target the same or lower-income households, especially when considering the large volume of allocated public funds”. It calls for land to be made available at its market value to all developers, whether public or private, and for all subsidies to be channelled through the state budget, arguing that this “would facilitate the monitoring of the true cost of the programme, reflect the real value of subsidy and ensure the most efficient use of public funds”.
The report also examines the school meals programme which covers 16.6 million students in government schools aged between four and 12. The programme has been expanded in recent years in an attempt to mitigate the impact of economic and subsidy reforms.
In 2021, SILO Egypt for Food Industries was launched in Sadat City to produce and distribute school meals. While such a centralised system is one option to avoid health and safety problems that have occurred in the past, the report argues space should be made for private sector companies to offer quality products at reasonable prices and recommends the government open the field to competitive bidding and focus on its regulatory role instead of directly investing and intervening in a commercially viable sector that could attract private investments and, in doing so, free funds for other social programmes.
*A version of this article appears in print in the 29 September, 2022 edition of Al-Ahram Weekly.