July 9, 2014
The new Egyptian President, Fattah el-Sissi, has inherited a country in political, social and economic disarray.
Starting with demographic growth of 1.7%, all major data indicate unsustainable trends: a budget deficit of 10% of the GDP, a public debt close to 100% of GDP, a 9% inflation rate and an explosive balance of payment gap.
Courageously, he has launched his reforms by cutting the exorbitant state subsidies on electricity and fuel, something the IMF and the International Energy Agency had urged the country to do for years.
As of 6 July prices for gasoline and diesel went up by 78% to 3 US cents, less than one tenth of European prices. This can only be the beginning of a long process. A poor country like Egypt cannot afford to subsidise individual transport, which benefits wealthy car owners and helps creating unbearable congestion and air pollution in Cairo and other cities.
What Egypt needs is a modern mass transport system, starting with a more extensive subway network in Cairo, for which its public finance needs improvement.
In parallel, taxes on property and cigarettes were raised and export subsidies reduced.
The decade-old subsidies on wheat had already undergone an overdue reform in April. In order to prevent large numbers of well-to-do citizens from buying subsidised loaves of bread and abusing a system meant for those living on less than $2 daily, the government has distributed smart electronic cards to the poor that allow them to buy their subsidised bread. Through this measure the government hopes to save about half of the $3 billion it used to pay for wheat subsidies.
In conclusion, the government deserves praise for having begun to tackle overdue reforms in Egypt. And the President has done well to explain to his people the rationale for his action in a 30 minute TV declaration.
But these measures cannot be more than the beginning of thorough reform process which must encompass all areas of economic, social and political life, above all the restoration of basic freedoms of expression.
Eberhard Rhein, Brussels, 9/7/2014Author : Eberhard Rhein