Monday,23 July, 2018
Current issue | Issue 1319, (10 - 16 November 2016)
Monday,23 July, 2018
Issue 1319, (10 - 16 November 2016)

Ahram Weekly

Enough protection for the poor?

Government efforts to shield the poor against price hikes following the floatation of the pound and petroleum price increases are likely to be inadequate, writes Nesma Nowar

Al-Ahram Weekly

As Egypt entered its first week after the floatation of the pound and increasing fuel prices, Egyptians’ concerns are rising about how they will cope with the moves that will inevitably lead to sharp price increases across the board.

On Thursday, the Central Bank of Egypt (CBE) floated the Egyptian pound, with the exchange rate for the currency now being determined by supply and demand in a move aimed at putting an end to the parallel market for the US dollar. At the same time, the Petroleum Ministry increased the prices of petrol and gas by between 30 and 50 per cent.

This week, the dollar was trading at around LE17 in banks, compared to LE8.8, the official rate before the floatation.

Egypt imports everything from food to fuel, so with the higher dollar exchange rate the prices of most goods will increase. Increased fuel prices will also push prices higher because transportation costs will rise, dealing another blow to those who will have to pay more for private transport services.

A report by the Central Agency for Public Mobilisation and Statistics (CAPMAS) measuring the impact of hiked petrol prices on private transportation fees estimates that microbus costs inside Cairo will see price increases ranging from 0.32 to 3.21 per cent, depending on the distance.

The new fares for the popular means of transport will range from between LE1.25 and LE4, while taxi fares will see an average increase of five per cent.

However, no fare hikes on public buses or the Cairo underground system have been announced. Cairo Governor Atef Abdel-Hamid said last week there would be no price hikes imposed on public bus fares, which currently range from LE1 to LE2.

He said the Cairo Transportation Authority’s (CTA) budget would bear the increased costs of fuel in order not to place additional burdens on citizens.

The news of the increases shocked Egyptian households, as they will further stress budgets that have already been strained by the rising cost of living over the past couple of years.  

In recent months, inflation has reached double digits to stand at 13.9 per cent in September, with analysts expecting the rate to reach 18 per cent by the end of this year in the wake of the floatation and fuel subsidies cut.

However, many economists have welcomed the moves, saying that the measures were necessary in order to kick start the economy and attract investment. But they added that the measures should be accompanied by policies to protect the poor and vulnerable from the price rises.

In a press conference last week, the government announced efforts to strengthen the country’s social safety net and contain the inflationary effects of the floatation and petroleum price hikes.

The government will launch a campaign to monitor prices nationwide, provide LE1.8 million to import basic commodities with the aim of generating a strategic stock of these goods for six months, and raise the prices paid for some basic crops to support local farmers, including sugarcane, corn and wheat.

The supply price of one ton of sugarcane has increased from LE400 to LE500, and the price of one ardeb (roughly 150kg) of wheat has increased from LE420 to LE450. The supply price of one ardeb of corn has also increased from LE2,100 to LE2,500, at a cost to the state of LE5 billion.

The government also intends to increase the amount allocated to individuals holding ration cards from LE18 to LE21 starting next month in a move that aims to compensate for the food price hikes. It will increase state expenses in this category from LE44 billion to LE50 billion.

According to the Supply Ministry, 71 million people currently use subsidy cards to buy essential food.

Minister of Supply Mohamed Ali Al-Sheikh said during last week’s conference that the private sector would be a leading partner in ensuring that basic commodities flow into the marketplace and that restrictions on imports would ease, including customs duties on sugar imports.

Also speaking at the conference, Minister of Social Solidarity Ghada Wali said that the ministry planned to increase the beneficiaries of its Takaful and Karama programmes to 1.7 million families by the end of the 2016/2017 fiscal year at a cost of LE2.5 billion.

Karama and Takaful are social support programmes that aim to increase the buying power of individuals and families living beneath the poverty line. The programmes already reach around 4.5 million people.

Wali said the government had decreased the age of those receiving the programme’s benefits from 65 to 60 years, costing the state LE200 million. She added that since 1 November, her ministry had increased funding for its school meals programme to cover all school days for state school pupils, whereas only half of all school days were covered previously.

Regarding salaries, public-sector employees will receive their seven per cent annual pay rise retroactively starting in July this year under the new civil service law approved by parliament in October. The move will cost the government LE3.5 billion.

Professor of economics at Cairo University Sherine Al-Shawarby said that the moves announced last week would hurt the population as a whole and the government was simply attempting to reduce the costs of the reforms on the poor.

She said the government should not tell people it was taking measures to protect the poor. “No government in a similar situation could guarantee that it could cover the poor and compensate them for all the damage these moves will do,” Al-Shawarby told Al-Ahram Weekly.

Egypt has five million households categorised as “poor”, she said, five million as “vulnerable”, and another five million as “middle class”, though the latter are also suffering from the price hikes.

She said the LE3 increase in the amount allocated to individuals holding ration cards was “insignificant” because of prices that have increased by 50 per cent.

The government also increased the price of subsidised sugar sold through the ration cards by 40 per cent earlier this month to reach LE7 per kilogram compared to LE5 earlier. The move aimed to stop price manipulation in the markets amid the sugar shortage that has hit the country in recent weeks.

Regarding the increases in the number of beneficiaries of the Takaful and Karama programmes, Al-Shawarby said the original plan for the programmes was to increase the beneficiaries over time, something the government would have done anyway even without the reforms.

Al-Shawarby argued that the measures were not satisfactory and at the same time came at a high cost for the government. She said the way to protect the poor was by offering them jobs in the formal sector, providing them with social insurance coverage, and giving them better access to services.  

Farag Abdel-Fattah, a professor of economics at Cairo University, agreed. He said that the only way to alleviate the effects of the reforms was to create jobs and empower citizens economically, adding that for now the government should increase the number of beneficiaries of the Takaful and Karama programmes from 1.7 to three million.

Al-Shawarby said that the reforms aimed at paving the way for better growth and that pursuing them had been a tough decision, but “what is important now is the day after” the reforms come in, she said.

She said the government needed to be transparent about what people could expect in the coming period. The state should set milestones for the short and medium terms, she said, so that people could follow up the effects of the reforms.

Over the next three to six months, she said, results should be seen, including the reopening of factories and the renewed flow of remittances into the banking sector.

Egyptians working abroad send back some $19 billion a year in remittances, an important source of hard currency which has been undermined by the country’s foreign currency shortage and thriving black market.

The recent crackdown on the black market has pushed dealers to carry out transactions abroad beyond the reach of the law, stripping the economy of a vital source of foreign currency. Black market traders have targeted dollars held by expatriate workers and exporters before they enter Egypt, exacerbating the country’s dollar shortage.

Al-Shawarby said the government should be frank about the fact that it does not have the resources to fully protect the poor. “The government should send out the message that everyone will be hurt by the reforms but that it will try to make them proportionate according to people’s resources,” she said.

A paper published by the Egyptian Centre for Economic and Social Rights (ECESR), an NGO, said this week that the state was ignoring the average citizen who would face massive pressures as a result of the reforms carried out by the government.

It added that the state had not taken sufficient steps for social protection, describing the measures taken by the government as more “provocative” than “protective”.

The ECESR said that at a time when the government has been moving quickly towards the liberalisation of the currency and subsidies system, it has been slow in executing social projects such as developing the healthcare system and restructuring the pensions scheme.

The paper said that the absence of social protection measures transformed these steps from being “economic reform steps to a war on the country’s poorest.” It said that the reforms could increase poverty rates to unprecedented levels, especially since the government had not implemented measures to raise tax exemptions on income tax, pushing the middle class into poverty.  

The current poverty rate in Egypt stands at more than 27 per cent of the population, according to CAPMAS.

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