Egypt has cut fuel subsidies and raised the price of gas 70 percent. The price of natural gas to industry is also rising significantly.
I’ve been saying that handling subsidies is the main test of the resolve of President Abdel Fattah al-Sisi to confront Egypt’s economic crisis head-on. it means he’s willing to risk an outbreak of public protest over the hardships this will cause–and it will cause hardships.
The heavily subsidized fuel has kept prices of staple commodities down in a nation where 40 percent of the people live near or under the international poverty line of $2 a day per person. Removing the subsidies could push some people over the line of starvation. Millions will be affected.
But there’s no other way–subsidies drain a third of Egypt’s budget and don’t help only the most needy. The government pledges to put the money it saves back into education and health services–but what will be needed over the medium term, at least, is financial support for the poores–what we in the West call welfare.
Next to go should be subsidies on other products, like bread and rice, which lead to outlandish waste. That’s the next test of the government.
But one thing is clear: Only a military-backed government like al-Sisi’s could attempt this necessary reform, because of the upheavals it’s likely to trigger. Don’t forget–public protests brought down two governments in Egypt in less than three years. No civilian government would even attempt this.