Egypt and food subsidies: the end of an era?


When Hani Qadry Demian, the new Egyptian Minister of Finance, took office less than a month ago, he clarified at once that national economic conditions were even worse than one could ever imagine. The budget gap, according to Demian’s assessment, is three times higher than the figure reported by his predecessor, Ahmed Galal.

When Hani Qadry Demian, the new Egyptian Minister of Finance, took office less than a month ago, he clarified at once that national economic conditions were even worse than one could ever imagine. The budget gap, according to Demian’s assessment, is three times higher than the figure reported by his predecessor, Ahmed Galal.

 

Despite cash flows coming from the allied Gulf countries, national currency stabilization and the overcome of the energy supply crisis, public finances are still in the red. Reuters recently evaluated the state of play of the Egyptian economy: within five years, according to the analysis, the ratio of public debt to gross domestic product (GDP) may rise above 100%, considered the “point of no return” for the Egyptian funds. Demian said that GDP growth rate would be equal to 2.3% this year, too little to avoid a financial slump. “Egypt is spending more than it can borrow while domestic production stagnates”, warned Moustafa Bassiouny, an economist of Cairo Signet Institut interviewed by Reuters. Therefore, the lending policy, applied also by Mohammed Morsi’s government, is burdening the national debt rate instead of shrinking it. Out of 103 billion dollars invested by Egypt last year, 25.4% are earmarked for interest payments on the debt.

In summer 2013, talks between the Egyptian government and the International Monetary Fund ground to a halt after a three-year long negotiation. During their periodical meetings with local authorities, the representatives of Christine Lagarde imposed strict conditions in exchange for a 5 billion dollars loan: cuts of subsidies and privatizations. Being aware that a reduction in handouts would only increase social instability and the risk of turmoil, both the former President Morsi and his successor, Hazem al-Beblawy, turned down the offer.

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