Egyptian families face growing concerns over the possibility of cancelling in-kind subsidies on essential goods and replacing them with cash subsidies amidst challenging economic conditions.
Standing in front of a food distribution outlet in Giza, Hoda (54 years old) looks puzzled at her August food supply. She says she has been receiving her family’s food supplies for over 30 years, during which time much has changed, with many goods disappearing for good, while economic pressures continue to burden the most vulnerable families.
Hoda, a widow and mother of three daughters, recounts: “Thirty years ago, I lived with my parents, six siblings, my mother, and my father. We received all the goods we used at home through the ration card, even cleaning supplies and soap, at very cheap prices. But over time, the goods have consistently decreased, and their prices have increased. In recent years, we’ve heard many rumors about canceling subsidies on ration goods, and we hope that doesn’t happen, especially since all prices have risen dramatically, making it impossible for us to keep up, causing shortages of essential goods in our home.”
She adds: “I receive my father’s pension, who worked in the irrigation and drainage sector, because my husband wasn’t a government employee and doesn’t receive a pension. We receive some food subsidies every month, including oil, sugar, pasta, and bread, but I feel a huge burden trying to meet my family’s monthly needs due to the high prices of goods. I also spend most of my income on my daughters’ education, so ration goods and subsidies are essential for our life and something we cannot do without.”
Recently, the Egyptian government announced the cancellation of extra sugar rations on ration cards, effective from September 1st, which was introduced last December at a price of 27 Egyptian pounds per kilo (approximately $0.56) to balance the market and increase the supply of sugar. Each card with three or fewer individuals would receive one kilo, while cards with four or more individuals would receive two kilos. This decision caused public concern about further cuts to rationed goods, though the government clarified that the decision only applied to extra sugar and did not affect subsidized sugar.
Egyptians’ concerns didn’t come out of nowhere. Months ago, the government officially stated, through its spokesman Mohamed El-Hamsani, its intention to “convert in-kind subsidies into cash subsidies,” meaning that each citizen would receive a predetermined monthly amount of money. For example, a family of five would receive up to 5000 Egyptian pounds ($104) monthly.
These statements sparked a wave of anger, as some believed that 5000 pounds would barely cover the cost of bread, especially with the price increases that would follow the subsidy removal. Others predicted that prices for goods and services in the local market would skyrocket if the government proceeded with this step, prompting El-Hamsani to clarify that “no specific amount has been set yet regarding cash subsidies” and that the figure mentioned was just an example. He added that “the cash subsidy will cover some services but not all,” and that it would be tied to inflation rates and global prices. The government aims to finalize a plan for converting subsidies before the end of the year, with implementation expected in the fiscal year 2025-2026.
These clarifications didn’t allay public fears, especially after Prime Minister Mostafa Madbouly followed up with statements about potential price hikes for bread. In a press conference last May, he announced that “it’s necessary to adjust bread prices to reduce the enormous subsidy burden.” Indeed, Egypt increased the price of subsidized bread by 300%, bringing it to 20 piasters (around $0.004) starting last June.
The Prime Minister also mentioned his government’s plan to cancel in-kind subsidies on goods and replace them with cash subsidies. He said: “The annual subsidy for bread in Egypt amounts to 120 billion pounds ($2.5 billion), with a daily production of 100 billion loaves.” He indicated that the government is studying the transition to cash subsidies for eligible families while ensuring continued support, especially for essential goods. The cash subsidy, however, would not be a fixed amount but would vary based on inflation rates and global prices.
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Why Now?
According to analysts, the essence of Egypt’s economic moves is linked to the requirements of the International Monetary Fund (IMF), which has repeatedly insisted that the government switch from in-kind subsidies, including fuel and energy subsidies, to cash subsidies. This transition would be facilitated by expanding social safety nets, such as the “Takaful and Karama” program, which provides conditional cash assistance to support poor and needy families.
On the other hand, government spokesman Mohamed El-Hamsani denies that lifting subsidies is an IMF condition, asserting that these measures are part of Egypt’s domestic economic reform program. “Even if the IMF recommends rationalizing subsidies and implementing certain budgetary reforms, this was never imposed as a condition. The reforms are in Egypt’s own interest.”
Meanwhile, MP Diaa El-Din Dawood told Zawia3 that most of the government’s recent economic measures are directly tied to IMF conditions, labeling Prime Minister Madbouly’s administration as the “IMF government.” He emphasized that the administration seeks primarily to implement these conditions without considering their impact on the Egyptian people, who are already facing increasing economic hardships.
Dawood warned that such measures, if implemented, could lead to severe consequences, including a rise in public dissatisfaction, especially amid unprecedented increases in the prices of essential goods. He pointed out that transitioning from in-kind to cash subsidies, especially for food items that are already linked to the dollar, adds further burdens on citizens regarding their basic food needs, especially for strategic goods.
The MP highlighted that the demands of Egyptians during the 25 January and 30 June revolutions were closely tied to achieving social justice and security. The collapse of this system would place the entire state in direct confrontation with its people. He added: “I believe no one can bear the security cost of social unrest resulting from economic deterioration, even though the public has endured many shocks and crises due to the government’s mismanagement of the economy over the years.”
He reaffirmed his firm opposition to the proposal to convert in-kind subsidies into cash, which has been debated in parliament since 2016. He predicts that the government will not move forward with this step anytime soon due to the serious social consequences it would bring, citing the government’s hesitation in raising the price of subsidized bread, which it was only able to implement after about three years of discussions.
Dawood stressed the importance of renegotiating with the IMF regarding the removal of subsidies on rationed goods, which directly affect the lives of low-income families who lack the social protection needed to withstand the current and ongoing crises. He affirmed that Egypt’s reality does not allow for the implementation of such decisions. On the contrary, it necessitates increasing social protection for citizens, especially the most vulnerable groups.
The Central Bank’s Perspective
According to the Central Bank of Egypt, the government has been forced to adopt austerity policies to address the state’s growing debt, which reached 93.5% of GDP in 2021, up from 73.8% in early 2013. As a result, about 35% of the general budget has been directed toward debt interest payments, putting additional pressure on citizens.
With an inflation rate of 35.2% by the end of December, coupled with consecutive price hikes, the government’s attempts to mitigate the situation have been limited to measures such as raising the minimum wage or increasing the amounts allocated to social protection programs and pensions. However, not all citizens benefit from these decisions, and they fail to keep pace with rising inflation and prices.
While the government raised the minimum wage to 6000 pounds ($125) for workers in both the public and private sectors and set the minimum pension at 1500 pounds ($31), many workers in agriculture, freelance jobs, and the informal sector do not benefit from these increases.
According to official figures, a family of four needs 3218 pounds ($67) per month to meet their basic needs—figures from 2020 that have since multiplied due to inflation.
In 2016, Egypt aligned its vision with the UN’s Sustainable Development Goals (SDGs), encapsulated in the 2030 Sustainable Development Strategy. Poverty eradication is one of the UN’s key objectives, listed as the first goal in the 2030 Agenda for Sustainable Development, adopted by the UN General Assembly in 2015. This goal calls for eradicating poverty in all its forms everywhere. The concept of poverty extends beyond the lack of income or sustainable livelihoods, encompassing hunger, malnutrition, lack of access to education, health, essential services, and marginalization.
The “Takaful and Karama” program has helped lift some of Egypt’s poorest from extreme poverty. The national poverty rate—the percentage of the population living below the poverty line—fell from 32% in 2017-2018 to 29.7% in 2019-2020. In Upper Egypt, poverty fell from 52% to 48% during the same period, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).
However, some observers argue that the monthly assistance provided is less than the national poverty line, which the government set at 10,300 pounds ($214) per year. Similarly, when compared to the current inflation rates, the benefits from social protection programs are insufficient. The government has allocated about 529 billion pounds ($11 billion) to social protection programs in the 2023-2024 budget.
Official figures indicate that a total of 22 million individuals benefit from Takaful and Karama pensions, which is about eight million fewer than the official poverty rate. Additionally, workers receiving the minimum wage are not eligible for further cash support, as social protection programs are not extended to employees.
Food and beverage prices in Egypt surged by 60.1% in December 2023 compared to the previous year, placing Egypt at the top of the list of countries most affected by food inflation globally, according to the World Bank. This crisis has accelerated inflation, particularly in food prices, due to the repeated depreciation of the Egyptian pound against the dollar since 2016 and rising food import costs.
Annual food inflation rates have seen jumps since November 2016 (the first flotation of the pound), reaching 13.1% in December 2018. After changing the base year from 2010 to 2018, the rate dropped to 0.1% in December 2019. However, it has since risen again, hitting 60.1% in December 2023.
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The Ration Card System
The ration card, first introduced about 83 years ago during World War II in 1939, has long been a safety net for Egyptian families, especially the poor. Whenever a crisis hit Egyptians, the ration card system was ready to alleviate the burden by increasing the number of goods available at discounted prices. This was seen during the 1967 war, and since 1952, following the July Revolution, the government allowed the distribution of goods like flour, wheat, sugar, oil, tea, ghee, fish, poultry, meat, and certain canned goods. This continued until Egypt shifted from a socialist to a capitalist economy under former President Anwar El-Sadat.
Egypt currently has about 23 million ration cards, benefiting around 64 million Egyptians out of a population of 103 million. The food subsidy bill in Egypt amounted to 87.2 billion pounds ($1.8 billion) according to the 2021-2022 fiscal year budget, with 50 billion pounds allocated to bread subsidies and 37 billion pounds for food subsidies.
The ration card system in Egypt has undergone significant changes since the 1980s, as population growth pressured the budget, prompting the government to implement reforms to reduce the number of beneficiaries and the range of subsidized goods. Over time, the system transitioned from paper cards to smart cards, with stricter regulations to target the most vulnerable groups.
Since 2014, the ration card system has seen noticeable changes, including a comprehensive clean-up that removed around 10 million cards, reducing the number of beneficiaries to about 70 million citizens out of Egypt’s 103 million population at the time. Today, about 64 million citizens benefit from ration cards, in addition to 73 million beneficiaries of bread subsidies. Each individual receives 30 subsidized goods worth 50 pounds ($1.04) monthly, in addition to 150 loaves of subsidized bread.
Hamed Ibrahim, who runs a ration goods distribution outlet in Giza, told us that the system has changed significantly over the past decade, with a constant reduction in the number of goods available to citizens. For example, in 2010, each individual received two kilos of sugar for 2.5 pounds, a bottle of oil for three pounds, and a box of tea for 65 piasters, all paid for in cash. However, since 2014, the government introduced smart cards, with each individual receiving only 50 pounds ($1.04) worth of goods, while the prices of rationed goods have risen.
He adds: “A ration card for two people covers 100 pounds ($2.08). In early 2014, this could cover the cost of three kilos of sugar, a kilo of rice, and a bottle of oil. But prices started rising gradually. Today, an individual receives a kilo of sugar for 12.60 pounds ($0.26), a bottle of oil for 30 pounds ($0.63), along with either a box of tea or a 100-gram container of cheese.”
He continues: “Many cards were canceled in recent years following the review of eligible recipients, including those working abroad, car owners, and high-income earners. It was expected that this would coincide with an increase in goods for deserving families and the most vulnerable.”
Kareem El-Omdah, a professor of political economy, told Zawia3 that what is happening is a restructuring of subsidies, not their cancellation. He emphasized that eliminating in-kind subsidies on all goods is illogical and could lead to severe social consequences. The government’s aim is to restructure the system by excluding those not eligible for subsidies to create savings.
El-Omdah points to the high poverty rates in Egypt, which exceed 30 million citizens, according to recent statistics, underscoring the importance of continuing in-kind subsidies for the most vulnerable groups while maintaining the ongoing review process to exclude non-eligible recipients, particularly for fuel and electricity subsidies. He argues that these savings should be redirected toward supporting the most vulnerable groups.
He warns that the issue of subsidies is extremely sensitive, often becoming a political tool for both the government and the opposition. Nevertheless, he believes that eliminating subsidies is impossible in light of the high poverty rates, inflation, and the economic strain on Egyptian citizens. Instead, the government should expand its support for the poor and vulnerable, while excluding non-eligible individuals.
The Impacts of Cancelling In-Kind Subsidies
Most estimates point to severe social consequences if in-kind subsidies on goods are canceled or converted into cash subsidies, especially given rising prices and inflation rates. Former MP and member of the presidential council of the Conservative Party, Talaat Khalil, warns of these impacts.
Khalil told Zawia3 that it’s important to differentiate between three forms of subsidies listed in the fourth section of the general budget: in-kind subsidies, grants, and social benefits. He argues that converting in-kind subsidies to cash is entirely inappropriate, especially for bread and ration goods, which are strategic products for Egyptians.
He explains that this transition is extremely dangerous for citizens. If the subsidy is linked to a fixed amount of money for goods with fluctuating global prices, the subsidy becomes ineffective. For example, if a citizen receives 150 pounds ($3.13) for bread today, they can make purchases, but over time, prices will rise, while the cash subsidy remains fixed, placing an additional burden on citizens to meet their basic needs.
Khalil highlights that under continuous economic pressures, citizens might be forced to spend their cash subsidy on other necessities, exacerbating the same problem of affording basic food needs. In some cases, the cash subsidy might even be received by irresponsible individuals who spend it on unnecessary items rather than benefiting their family.
He argues that the in-kind subsidy system faces leakage and theft, but the solution is to prevent these issues by implementing strict mechanisms to ensure the subsidy reaches those who truly need it, rather than converting it into cash without proper study, which would significantly increase the suffering of Egyptian citizens.
A study by the Egyptian Initiative for Personal Rights (EIPR) highlights the significant flaws of cash subsidies as a social protection tool for the poor. First, the real value of cash subsidies declines over time due to high inflation rates. Second, the system requires a continuously updated information network and ongoing evaluation, which drains resources through a large bureaucracy tasked with assessments. Third, the current cash subsidy system excludes a large segment of the poor and suffers from significant leakage to non-eligible individuals, undermining the very premise of switching to cash subsidies unless the goal is to reduce overall support.
Experts argue that in-kind subsidies remain the best solution to hunger and malnutrition in Egypt. Transitioning to cash subsidies could lead to problems in the distribution of financial resources within families, with older and stronger individuals dominating the family’s social structure and taking the subsidy money, leaving children without it. Additionally, unexpected expenses related to education and healthcare could force many to spend their food subsidy on other items, exacerbating the issue of malnutrition among the poor in Egypt, according to the same study.
The Egyptian constitution guarantees social protection for citizens. Article 17 states: “The state shall provide social insurance services. Every citizen who does not enjoy the insurance system shall have the right to social protection, guaranteeing them a decent life if they are unable to support themselves and their families in cases of incapacity for work, old age, or unemployment. The state shall work to provide an adequate pension for small farmers, agricultural workers, fishermen, and irregular workers, in accordance with the law. Insurance and pension funds are private property, enjoying all the protections afforded to public funds. They and their returns are a right for beneficiaries, and shall be invested safely, managed by an independent entity in accordance with the law. The state guarantees the funds of insurance and pensions.”
Article 79 stipulates: “Every citizen has the right to sufficient and healthy food and clean water. The state shall secure food resources for all citizens. It shall ensure food sovereignty sustainably and guarantee the preservation of agricultural biodiversity and local plant varieties to safeguard the rights of future generations.”
Despite these constitutional guarantees of social protection and the government’s emphasis on marginalized and vulnerable groups, the ration system remains the last safety net that Egyptians trust to help meet their essential food needs. They hope it remains in place amid increasingly challenging economic conditions.