Cairo

Source: Al-Wafd newspaper

Dr. Ali Mohamed Al-Khouri

With global economic shifts and budget pressures, Egypt is moving towards phasing out fuel and bread subsidies as part of its strategy to achieve fiscal sustainability. This decision represents a vital step towards improving resource allocation and creating a more sustainable economy. In FY 2023-24, the Egyptian government allocated approximately EGP 119.4 billion for fuel subsidies, based on an oil price estimate of around $80 per barrel. This represents a significant increase compared to the previous fiscal year when fuel subsidies amounted to EGP 58 billion, exceeding expectations by EGP 28 billion. The government also allocated EGP 125 billion for bread subsidies and EGP 147 billion for petroleum products in the 2024-25 budget.

In the context of the move towards reducing subsidies, the government remains committed to funding social programs that are the primary safety net for low-income households. It has allocated EGP 31 billion to social security and solidarity programs, EGP 14.1 billion to health insurance and medical treatment, and EGP 10.2 billion to social housing. However, there is a growing need to reallocate resources more efficiently to support the most vulnerable groups.

Lifting subsidies is expected to increase transportation and basic goods prices, directly impacting the cost of living. This change could increase the burden on citizens, especially those with limited income, with inflation rates expected to rise to 30% in 2024. Companies may be forced to raise prices of products and services to compensate for the higher costs of production, further exacerbating economic pressures on consumers.
To mitigate these effects, policymakers must work on designing more effective national programs, such as making the best use of available resources, protecting low-income families, and ensuring that subsidies for basic goods reach the greatest benefit at the lowest cost.
The Egyptian government has already initiated several measures to mitigate the potential negative effects of lifting subsidies. This includes increasing the minimum wage to EGP 6,000, expanding social safety nets, supporting affected economic sectors, and investing in infrastructure projects to enhance efficiency and reduce costs.

Historically, subsidy reforms in countries around the world have led to social unrest, including in Egypt. Increasing the cost of living without adequate preventive measures could trigger negative reactions.

Higher energy prices are likely to increase production costs in many economic sectors, potentially leading to job losses and lower economic growth. Sectors such as transportation, manufacturing, and agriculture are particularly vulnerable. To support these sectors, policymakers should provide tax incentives, incentivize the use of energy-efficient technologies, and provide retraining and upskilling programs for workers to adapt to new economic and technological labor market realities.
Developing a robust system for distributing cash support to eligible beneficiaries is critical. This system must be transparent and efficient to prevent misuse and abuse. Digital technologies and national identity systems can enhance the accuracy and fairness of cash transfer programs, ensuring that assistance reaches those most in need.

Carefully managing the subsidy removal process is vital to maintaining political stability. Inclusive decision-making processes that involve all societal actors can foster consensus and popular support. Regular consultations with civil society organizations, trade unions, and other stakeholders can help address concerns, build trust, ensure transparency, and adapt policies as necessary.

Overall, it is clear that the phasing out of fuel and bread subsidies in Egypt is a complex but, according to the data, necessary step towards economic sustainability. However, in the midst of such national reforms, the most important question remains: How can Egypt balance the need to achieve economic sustainability with the requirements of social justice? Achieving this balance requires a strategic vision committed to transparency and effective communication with the public. Can this step become a turning point towards a more just and sustainable economy, or will it raise new challenges? Another question is how can society benefit from social innovation to provide practical and sustainable solutions to the challenges of subsidy removal? How can the private sector, startups, and community initiatives contribute to providing support? What policies should be adopted to stimulate this type of innovation?

Decision-makers should carefully consider the potential consequences of each step, and work closely with all stakeholders to ensure that these reforms are a source of long-term stability and growth.