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Egypt's doubled rations no cause for celebration as prices set to soar

The Egyptian government has doubled rations for millions of citizens even as the new budget outlines a plan to reduce and eventually eliminate subsidies altogether.
A man holds his smart card and some coins at a bakery in the Suez Canal city of Port Said, 170 km (106 miles) northeast of Cairo, February 24, 2014. A device resembling a credit card swiper is revolutionizing some of Egypt's politically explosive bread lines and may help achieve the impossible -- cutting crippling food import bills. Authorities who hope to avoid protests over subsidised loaves sold for the equivalent of one U.S. cent have turned to smart cards to try to manage the corrupt and wasteful bread

CAIRO — President Abdel Fattah al-Sisi issued a decision June 20 increasing individual monthly ration allocations from 21 Egyptian pounds ($1.16) to 50 ($2.80). Until 2017, 71 million people used government subsidy cards to buy food staples, Egyptian Minister of Supply Ali Moselhi said in a press statement in March.

The move comes at the same time that Egypt is working to meet economic reforms stipulated in the terms of a $12 billion loan from the International Monetary Fund (IMF). On July 14, the IMF announced that it had approved releasing $1.25 billion to Cairo as the final installment of the second portion of the overall loan.

Following the president's decision, every registered card holder will benefit from additional basic subsidies worth 25 pounds ($1.40), bringing the total subsidies per person to 50 pounds for up to four people registered on a single family ration card. A family of more than four will receive only 25 pounds for each additional member. The decision did not specify a maximum number of family members eligible for food subsidies.

Some observers, however, believe that the move will likely lead to an increase in the prices of goods, as more than doubling ration allocations for most recipients does not go in line with Sisi’s economic plan to reduces state subsidies.

The increase in individual rations contradicts Sisi’s Jan. 24 statement: “The dire economic situation is no secret to anyone. The economic situation is so critical that no palliative measures will work. This necessitates a comprehensive intervention to reform and correct the economic track.”

The president also spoke of the urgent need to roll back subsidies on the sidelines of the April National Youth Conference.

Just two days after Sisi’s decision, the two most important foodstuffs that are distributed at subsidized prices increased in price. Moselhi decided June 22 to increase the prices of sugar and oil by 2 pounds each, raising the price of a kilogram of sugar from 8 to 10 pounds (44-56 cents), and the price of a bottle of oil from 12 to 14 pounds (67-78 cents), starting July 2017.

On June 29, the Egyptian Cabinet approved a new increase in fuel and natural gas prices. The decision entered into force July 1, increasing the price of 80-octane fuel from 2.35 to 3.65 pounds (13-20 cents) per liter, and 92-octane fuel from 3.5 to 5 pounds (19-28 cents). Fuel prices increased from 1.8 to 2.35 pounds (10-13 cents), while the price of gas cylinders increased from 15 to 30 pounds (83 cents-$1.67). This decision is the third increase in less than a year, after government decisions to raise energy prices and devalue the pound against foreign currencies on Nov. 3, 2016.

Opposition parliament member Haytham Hariri told Al-Monitor the increase in fuel prices is only the beginning of a surge in public transportation prices and that these reckless decisions pose a threat to the Egyptian street, where anger is soon to spread. Hariri said, “The increase in the ration cards is merely a palliative measure whose effects will soon wear off, given the high prices of all goods, especially rising fuel prices.”

Egyptian economist Raed Salameh told Al-Monitor, “The ruling regime’s stance toward these subsidies must be interpreted in the context of the government's agreement with the IMF. The Egyptian government made commitments to the World Bank not to interfere in the country's economic activity, which it did by floating the pound against the foreign currency exchange and the price of goods and services so as not to let profits worsen the impact of draconian austerity measures, such as cutting public spending on health and education as well as subsidy allocations.”

Salameh added, “Such measures confirm the government’s commitment to fully remove fuel and supply goods subsidies. The 2017/2018 budget explains the government's orientations in terms of subsidies: Subsidies were increased on paper, but prices rose from 278 billion pounds to 333 billion pounds [$15.4 billion-$18.5 billion], which is the total value of subsidies stated in the budget. This would mean that the increase on paper amounted to only 55 billion pounds [$3 billion], but in fact, the government reduced subsidies, which reached 278 billion pounds [$15 billion] last year when the exchange rate equated to 9.25 pounds to the dollar. Today the dollar is traded at 18 pounds, which means that subsidies were reduced, not increased. Subsidies should have increased to 555 billion pounds [$31 billion] based on the dollar’s exchange rate.”

He said that locally produced commodities and agricultural products do not meet the local market’s needs, increasing the need for imports and leading to a subsequent rise in prices.

Salameh pointed out that the government announced its 2017-2018 state budget in March, and the parliament only recently approved it. The budget lays out a plan for the government to reduce subsidies for power and fuel.

The Egyptian government and citizens remain at odds over this thorny issue, and tensions are rising on the Egyptian street as the debate over subsidies continues.

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