Saturday,22 September, 2018
Current issue | Issue 1205, (10 - 16 July 2014)
Saturday,22 September, 2018
Issue 1205, (10 - 16 July 2014)

Ahram Weekly


Al-Ahram Weekly

A balancing act

News of subsidy cuts in the energy sector, though long expected, raised red flags across the economy, with some critics noting the spiralling effect of increased energy costs and others raising the question of social justice.

With the economy still trudging along at the lowest growth rates in years, the government said it could no longer keep the subsidies at their current levels. We’re not even through trimming our bloated budget. Even after the recent subsidy cuts, the budget deficit is nearly LE240 billion ($74 billion), which means that we still need to borrow just to make ends meet.

Energy will see price hikes across the board after the government partially lifted subsidies from natural gas, butane gas, gasoline, kerosene and diesel. According to finance ministry officials, all the above products were sold in the local market at much lower prices than their cost of production or import. In the 2013/14 budget, the government had to pay nearly LE113 billion ($16 billion) to sell us cheap energy.

Experts say that much of the subsidies go to the rich, not the poor. It is the rich, after all, who have the biggest cars, air-conditioned houses, swimming pools, etc. The new budget calls for the reduction of energy subsidies by about LE41 billion ($7 billion), with the rest of the subsidies completely phased out over five years. Reassuring the public, the prime minister said that the poor would not be affected by the recent measures. But the facts suggest otherwise.

When you increase the price of oil products, transportation gets more expensive, factories producing food incur further costs, and household electricity bills go up. Shops and other businesses catering to everyone, including the poor, are likely to hike their prices. The government keeps saying that this is not going to happen. For example, the supply minister announced that there will be no change in the prices of basic supplies. But how much of this is true, and how much is wishful thinking?

It is common knowledge that the main users of the natural gas and diesel oil are energy intensive industries. Cement, fertilisers, steel, food, are all going to be influenced by the scaling back of subsidies. As their costs go up, these industries are doubtless going to hike their prices. Doctors, lawyers, technicians, engineers, taxi drivers, minibus drivers and many more whose services are in demand by everyone, including the poor and the middle classes, are likely to increase their fees.

Still, the prime minister reassured us that the impact of the removal of subsidies would be limited. Microbus fares will only increase by two to six per cent, he promised. This is rather curious. Imagine you’re taking a microbus that costs you LE1 per ride. Is it realistic to expect the driver to start charging one pound and six piastres? No one uses six piastres anymore. No one uses less than 25 piastres. So the proverbial minibus fair will increase not by six per cent, as the prime minister suggests, but by at least 25 per cent.

A taxi driver appearing on TV recently said that taxi fares would have to match the expected rise in the prices of food. The reporter interviewing him pointed out that the government promised to start selling vegetables and fruits in trucks in the streets at bottom prices. The taxi driver was not convinced.

“Where are these trucks; did you see them?” he asked.

We all know that something had to be done about subsidies, but it is also prudent to prioritise this process. For example, energy-intensive monopoly industries, especially those that sell their products in the market at higher prices than international levels, must have their subsidies withheld. Also, households that use a lot of electricity don’t deserve to get subsidies. But food industries deserve a break, and if the government wants to scale down the subsidies offered to those industries, it would have to step into the market to buy food and sell it at affordable prices to the public.

The government should also ensure that public transportation is available at a reasonable cost for all.

We need to fix the economy, and we are willing to believe the government when it says that it is slashing subsidies to spend more on education and health for the poor. But for the poor to benefit from these future promises, some effort is needed to keep them alive.

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