News Analysis: Egypt enacts unprecedented cut on bread subsidy to reduce budget deficit


  • World
  • Sunday, 09 Jun 2024

by Marwa Yahya

CAIRO, June 8 (Xinhua) -- The Egyptian government has quadrupled the subsidized price for traditional flatbread to 0.2 Egyptian pounds (about 0.0042 U.S. dollars) nationwide since June 1, the first such move in three decades to alleviate the heavily strained public budget.

For years, nearly 70 million people, or 60 percent of Egypt's population, counted on the long-running bread subsidy scheme to fill their stomachs. Before the price hike, the government's production cost of each loaf was 1.25 pounds.

The public budget is expected to be cut down by 13.4 billion pounds following the new move, Ali Moselhi, minister of supply and internal trade, told local Sada al-Balad TV on May 29.

LIFELINE, RED LINE

Over the past years, Egyptian governments have mulled over subsidy cuts to alleviate the financial burden. Still, they never put them in place due to public outcry against the high cost of living and the move's potential impacts on social stability, like the 1977 Bread Riots triggered by a similar reform.

Now, following a record surge of global grain prices, compounded with a significant drop of the Egyptian pound to the greenback, a subsidy cut seems to be a last resort to save public finance.

In March, the Egyptian finance ministry announced the allocation of about 125 billion pounds for bread subsidies in its 2024-2025 state budget, up from 91 billion pounds in the current fiscal year.

Moselhi told Egypt's ON TV news channel on Saturday that the decision aimed to ease the state budget deficit before the start of the new fiscal year on July 1.

"No further price hikes to subsidized bread will happen unless we see major price fluctuations," he added.

Waleed Gaballah, a member of the Egyptian Association for Political Economy, Statistics, and Legislation, said that rising import bills and a decline in the Egyptian pound's purchasing power left Egypt's public finance no choice but to cut bread subsidies.

Egypt consumes more than 20 million tons of wheat annually. Less than 9.5 million tons were supplied locally, according to Supply Ministry Spokesman Ahmed Kamal.

The country heavily relied on the Black Sea trade corridor to cover more than 80 percent of its wheat import demands last year, but the Russia-Ukraine conflict disrupted the supply chains and pushed up the commodity prices.

To feed the burgeoning population, Egypt has to import 11 million tons of wheat in 2023, up from 9.6 million tons the previous year, Egypt's Deputy Minister of Supply and Internal Trade Ibrahim Ashmawy recently said. This makes the country the world's largest wheat importer.

A DAILY STRUGGLE

Food subsidies in Egypt started in the 1940s to shield the poorest people from the impacts of supply chain disruption caused by World War II, according to Gaballah.

More than ten years after their enactment, the Egyptian flatbread emerged as a handy, satiating national staple.

According to the World Grain website, the country consumes about 150-180 kg of bread annually, more than double the global average of 70-80 kg per capita.

Despite increasing prices of essential food items like rice, edible oil, and pasta on the heels of the country's latest economic reforms, bread remained affordable for even the poorest families.

The surging inflation came amid currency float, increased taxes, and subsidy cuts in line with the International Monetary Fund (IMF)-backed reforms.

In Egypt, subsidy cardholders get an allowance of five flat round bread loaves per person daily or a 10 kg bag of flour per month.

Abdel-Salam Ahmad, a pensioner with a family of five waiting outside a subsided bread kiosk in Cairo to collect 25 loaves of bread, said the subsidy cut would be "a stone thrown in calm water."

He worried that the unprecedented subsidy cut would trigger a price increase in such utilities as electricity and water and other subsidized commodities like fuel, cooking oil, sugar, and rice.

Amira Mahrous, a 48-year-old housewife, complained that her children eat bread most of their daily meals simply because this is the most affordable food item.

She said vegetables have become a luxury due to price surges, adding that income from his husband's seasonal jobs can barely afford rent, water and electricity bills, transportation, and education.

"Bread means security for poor people," she added while waiting for her portion of bread in front of another kiosk in the blazing hot weather.

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