Egypt grapples with pressures on food subsidy system
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22/04/2008
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Financial Times (London)
Egypt is to review its food subsidy system as it seeks ways to tackle rising inflation, which reached 14.2 per cent in March. Youssef Boutros-Ghali, finance minister, told the Financial Times that the government would look to raise additional revenues through new taxes or increasing existing taxes. However, he said corporate taxes, which were reduced in recent years as part of wider economic reforms, would not be altered, adding that no tariffs that impacted "on profit and production" would be increased. Rising inflation, particularly big increases in food prices, have led to growing discontent in Egypt, as well as concerns that it could threaten a four-year economic reform programme. A World Bank assessment last year estimated that one in five Egyptians could not meet their basic living needs, and during the past year there have been a growing number of strikes and protests by workers. "I think it will be more difficult for the government to push ahead on controversial policies when people are falling under pressure because of inflation," said Simon Kitchen, an economist with the investment bank EFG-Hermes. "When you look at the recent strikes at textile companies, the government met workers' pay demands whereas they would not have done it so quickly a few years back." But he said the government was proceeding with plans to reduce energy subsidies to industry, so they were still "going in the right direction". Mr Boutros-Ghali said poverty levels were likely to have increased in the last six to eight months as a result of inflation. The subsidy system is crucial to millions of Egyptians. The mere announcement in November that the government wanted to look into replacing some subsidies with cash handouts to poor families produced loud accusations that the state was about to shirk its duty to the vulnerable. Already this year 15m names have been added to the list of people eligible for subsidised food in Egypt and Mr Boutros-Ghali said the subsidy system was being reviewed to improve quantities and coverage. The high inflation environment would not slow down the reform process, he said. It just meant "we have to focus more intently on the less privileged". Copyright The Financial Times Limited 2008