High Inflation: Egypt Considers Bread Subsidy Removal

To protect the budget from rising global wheat prices, Egypt may replace a popular bread subsidy with cash payments for the poor, but domestic inflation and a history of protests may prompt the government to opt for less ambitious reforms.

About two-thirds of Egypt’s 102 million population receive 50 cents worth of bread for 5 loaves per day under the existing program, little changed since a price hike in the 1970s was prevented by nationwide “bread riots.”

Handouts are considered a lifeline to the poor but are often criticized for being wasteful. Last year, President Abdel Fattah al-Sisi said it was time to eliminate Egypt’s bread subsidies in light of the high global price of wheat. read more

Ali Moselhy, the minister in charge of subsidies, said the inflation rate, which rose in recent months to 6% from 4% earlier in 2021, makes it more difficult to replace bread subsidies with cash handouts.

“When inflation is stable, then you can introduce cash,” he said.

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Moselhy is of the opinion that giving people money to buy bread is a good idea. Egypt’s eligible citizens already receive a monthly $3.20 voucher for subsidised food.

Nevertheless, he said the idea of unconditional payments, favored by many economists as the best welfare system, could drive up prices by increasing the amount of cash in circulation at a time of rising inflation.

Officials have recently announced that the government will prepare a plan for reformed food subsidies in time for the March budget preparations.

For now, Moselhy said the government has not made a decision, and is instead focused on improving the database of recipients, with the intention of “finding out who needs what.”

Consequently, any changes might be more limited, such as trimming the program through means testing, limiting the number of eligible households, or boosting the price of subsidized bread.

In the past, Sisi reformed fuel and power subsidies. Due to increases in commodity and shipping costs, his government raised the price of subsidised vegetable oils and sugar.

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According to the finance ministry, a higher wheat price will add $763 million to the budget for 2021/2022 under the government’s food subsidy program.

Throughout Egypt’s history, officials have tweaked the bread scheme, attempting to restrict eligibility as the population has grown, shrinking the weight of subsidized loaves, and offering credit to people for bread they did not collect.

Despite this, the price of a subsidised basic loaf has remained constant since the 1980s at 5 piastres ($0.003).

It will take deeper changes to the bread allowance to make a dent in the food commodity import bill, something governments have been leery of since an attempt to scrap subsidies in 1977 sparked riots, which lasted for days until the decision was reversed.

Sisi’s adjustments to subsidies so far and his statement that it was time to address bread have prompted grumblings, but street protests are rare.

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According to Ahmed Darwish, a former minister who oversaw the transition to a smart subsidy card system in the early 2000s, authorities will have to tread carefully in order to assure the public that they will not be left exposed.

Darwish said until the government announces this subsidy will increase with inflation, they must comfort the people.


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