Reliance on state-subsidized supplies rises after Cairo signs $12bn package with IMF, according to a Financial Times report, titled: “Egypt’s loan conditions leave poor on the bread line”.
While Zeinab Ahmed and her friend are waiting for the fresh loaves of subsidized bread they have just bought to cool, they talked about how soaring food prices are forcing their families to alter their eating habits.
Ms Ahmed, outside a bakery in Imbaba, a poor district of Cairo, said that “Prices have gone crazy. Rice has doubled in price so we eat bread instead.”
The wife of a metalworker, she says she has doubled the amount of bread she buys in recent months. Her friend, Boshra Talaat, says her family of five has replaced rice and pasta with bread “for all three meals.”
In fact, They are not alone. In recent months, many poor Egyptians have had to increase their reliance on government-subsidized bread as they struggle with crippling food price inflation that topped 41 % in March.
FT said,”It is a phenomenon that underlines how poorer Egyptians are feeling the pain of reforms the government implemented to secure a $12 billion loan package from the International Monetary Fund.”
It added, ” And it illustrates how the government’s bread programme — with loaves costing five piastres, about a quarter of one US cent — functions as a vital protection against hunger and a safety valve to prevent social unrest.”
Ashraf Sayed Ahmed, a baker in Imbaba, says he used to get through 18 sacks of flour every day but that has now gone up to between 24 and 26. He said,”People are tired of the high prices, and so are we.” He added,”Everything has gone up.”
Ali Moselhi, minister of supply and internal trade, who is in charge of the $2.5 billion subsidized bread programme, says not everyone has raised their consumption.
“The average was three loaves per person per day and now it is more. We see this more clearly in the countryside than in the city,”he said.
He reckons that part of the increase in rural areas is the result of people feeding subsidized bread to farm animals because it is cheaper than livestock feed. He said,”There is nothing that costs less than a kilo of subsidized bread which is only 50 piastres.”
In fact, about 90 % of Egypt’s population are entitled to five loaves a day under the programme, and 28% of Egyptians live below the poverty line while millions of others hover just above it.
There is no doubt that one of the main causes of soaring food prices was the government’s decision in November to float its currency — a condition of the IMF loan — after which the currency halved its value against the dollar.
In addition, the IMF loan conditions have also required Cairo to cut off the fuel subsidies, with the reforms helping restore investor confidence in Egypt’s ailing economy. “But the lender stayed clear of demanding cuts to the bread programme, considered by successive Egyptian governments as crucial for political stability,” said the FT.
In 1977, when the Egyptian authorities scrapped food subsidies in an attempt to secure loans from the IMF and World Bank, bread riots spread across Egyptian cities.
Still the programme is so sensitive that when the minister of supply tried to twist the system in March, protests broke out in several provinces.
His plan was to reduce the number of loaves bakers could sell to people without the electronic cards needed to prove they are eligible for subsidized bread. But he was forced to reverse the decision back, even though he says many bakers abuse the system.
The price of bread on the open market is at least 15 times that produced by bakeries contracted by the government to make the subsidized loaves.
Moselhi said he would like to introduce reforms that would make the system more efficient and curb the leakage of subsidized flour to the black market, which he estimates at 15 to 20 % of the amount supplied to bakers.
He says one way of doing that would be to increase the price of bread and compensate people for the rise with a cash subsidy. However, he recognizes that at a time of high inflation and price volatility, it is not the moment to tinker with the system.
He also said,”We do need every pound [of savings] to decrease the budget deficit and improve the economy but now prices are not stable and inflation is extremely high.”
“If we stabilize inflation, I am totally with the cash subsidy. But the subsidy is to protect the poor and the needy in order to provide them with basic commodities. If we don’t achieve this objective, we would be doing something wrong.”
When Abdel Fattah al-Sisi has worked to fulfill the IMF economic reform program to secure the loan, it was obvious that he has chosen to take the Egyptian people through the hard path.
In this context, the International Monetary Fund’s executive board has approved Egypt’s request to secure $12 billion loan facility after Egypt met its requirements last November .
On August 30 Egypt started its first steps towards the loan when Egypt’s parliament approved a long-awaited law introducing a value-added tax (VAT) of 13 %, rising to 14% in the next fiscal year.
On November 3, the Central Bank of Egypt floated the Egyptian pound and gave up trying to peg the currency to the US dollar allowing it to devalue by almost half.
On November 4, Egypt took another unprecedented decision, which has always been abandoned by former leaders in fear of public unrest, to cut subsidies for fuel leading to jump in prices, in addition to the introduction of the value-added tax to raise revenues.
Abdel Fattah al-Sisi has said before that he would not hesitate “for one second”to take the difficult steps necessary to ensure Egypt lives within its means.
In this context, last December, Al-Sisi asked the Egyptian people to endure hardships and austerity for the next six months, but for how long will the Egyptian people bear the IMF loan burden?