Besides coronavirus, Egyptians face subsidy cuts

The analytical statement of the budget for the fiscal year 2020/2021, announced by the Egyptian government a few days ago, revealed a decrease in subsidy allocations by 0.4 per cent instead of increasing them by 10 per cent as the government had previously pledged.

The government continues to violate the constitutional articles that specify spending on health, education, and scientific research, and circumvent legal obligations by adding other items to these sectors, so the constitutional ratio is achieved in theory.

Cutting subsidies despite coronavirus crisis

Although it was expected that the current budget would reveal an increase in subsidy allocations to reach EGP 360.29 billion ($22.82 billion), the allocations registered in the new budget decreased to EGP 326.3 billion ($20.66 billion). The government reduced subsidies for petroleum products to EGP 28.19 billion ($1.79 billion) in the new budget, compared to EGP 52.96 billion ($3.35 billion), a decrease of more than 46 per cent. The decrease in electricity subsidies reached an unprecedented level, as they decreased by 100 per cent, which means that the government is continuing its plan to completely eliminate electricity subsidies. The government also reduced spending on food subsidies to EGP 84.4 billion ($5.35 billion), compared to EGP 89 billion ($5.64 billion) this year, down by more than five per cent. A decline in food subsidies is a continuation of a policy pursued by the government several years ago. This policy is to limit the growth of such subsidies by reducing the number of beneficiaries, a policy that many commentators have criticised.

Salma Hussein, a researcher at the Egyptian Initiative for Personal Rights, stresses that “the time is not appropriate to reduce the number of beneficiaries of food subsidies. The economic crisis resulting from the outbreak of the coronavirus… will lead to many people losing part of their income or all of it. This will be quickly reflected in their consumption level.” Hussein also explains that “reducing consumption in general will reach families’ consumption of food… The solution in this case is to use a mechanism that is already available: using the system of food subsidies to provide more food to more families even if the exclusion criteria were applied to them… We need to target those close to poverty with support as well.”

Circumventing the constitution

The Egyptian constitution states that “the state shall commit to allocating a percentage of government spending to health not less than three per cent of the GDP.” The government does not spend this constitutional percentage and circumvents it by adding other items to the health sector. According to the introductory statement of the 2020/2021 budget, health allocations in the new budget amount to EGP 245.5 billion ($15.55 billion), which is equivalent to 3.72 per cent of GDP. The real spending, however, according to the same statement, amounts to about EGP 93 billion ($5.89 billion), 1.37 per cent of the GDP, or 1.63 per cent less than the percentage specified in the constitution.

The government added several items to the health sector to make it look bloated. It added part of the interests of the public debt and the cost of sanitation projects. Also, it added the budget of other agencies that provide health services such as the police, the army and al-Azhar hospitals, although these are hospitals that only serve limited professional segments. The same applies to the education sector. The current constitution stipulates that the state must commit to allocating no less than four per cent of GDP to the sector. It also stipulates that the state is obliged to allocate a percentage of spending on university education of not less than two per cent. Thus, the state must allocate at least six per cent of GDP to spending on education in total.

According to the introductory statement of the new budget, the government allocated EGP 363.6 billion ($23.03 billion) for education spending, or 5.3 per cent of the GDP. Although this amount did not reach the constitutional ratio, it was manipulated. According to the functional division found in the introductory statement of the new budget, actual spending on education does not exceed EGP 157.58 billion ($9.98 billion), and thus represents a percentage of GDP less than half of what is stipulated in the constitution. The government has added many provisions to education allocations to make it look bloated. Portions of the debt interest, al-Azhar cultural affairs spending, and the Ministry of Social Solidarity’s student scholarships were all added to the education allocations.