Smart solution to Egypt’s urgent economic need

May I propose that the government and the IMF consider topping up the family card with an urgent but temporary increase – with emphasis on the temporary – to help the poor get through this economic transition period?

The point of an IMF agreement is to support a country’s fin­ances as it performs surgery on its economy. It is emergency cash for the government to reduce debilitating budget and balance of payments deficits to spur long-term growth.

So it seems to me that since this is short-term support to enable short-term economic adjustments, then the broader population that is being asked to bear the brunt of the pain should be extended some short-term emergency help as well.

The IMF regularly inserts boilerplate sentences about providing social safety nets when it announces its programmes.

In Egypt’s case, it said: “About 1 per cent of GDP from fiscal savings will be directed to additional food subsidies and cash transfers to the elderly and poor families. Resources for social programmes such as school meals, subsidies for infant milk and children’s medicine, and vocational training for young people will also be preserved, and in the case of free school meals, greatly increased.”

This is fine for the long term, but what about the next few months, when people will need to adjust their spending patterns to make ends meet?

Few among Egypt’s political and economic elite would disagree that it was foolish spending 20 per cent of the budget to keep Egypt’s petrol and diesel prices artificially low, especially since it is mainly the wealthier parts of society who own cars. The question has always been how to redirect these resources to areas such as education and health that would improve people’s lives. The fuel price increases this month were a short-term adjustment designed to improve people’s lives in the long term.

Similarly, the recent increase in the value-added tax and currency devaluation will make the country more attractive and lure in new investments but will take time before it will lead to new jobs. People will suffer in the meantime.

May I propose that the government and the IMF consider topping up the family card with an urgent but temporary increase – with emphasis on the temporary – to help the poor get through this transition period?

The most promising way to do this would seem to be through the highly popular smart card programme that the government introduced early last year. The card initially provided beneficiaries 15 Egyptian pounds a month (now Dh 3.51) to buy a long list of products such as sugar, tea and cooking oil at market prices. But early this year the amount was increased to 18 pounds, then early this month to 21 pounds when the government floated the pound and increased fuel prices.

The other two main programmes emphasised under the IMF package are Takaful and Karama. Takaful provides a monthly 325 pound cash payment and another 60-100 pounds per child, depending on age, to families in severe poverty. Karama gives a monthly 350 pound cash payment to needy people who are older than 65 or have disabilities that prevent them from working. These are worthy programmes but don’t address the immediate concern of helping people get through the painful transition.

The smart card system benefits 71 million of Egypt’s 92 million people, which means that every one-pound increase in benefits would cost the government an extra 71 million pounds a month, or about US$4.6m, at the current exchange rate, assuming everyone spent their entire allotment.

This could come down. A government committee is now reviewing the lists to eliminate the deceased, repeated names and people who have left the country. It presumably may also be trying to weed out some of the less needy. Last week, the prime minister told the committee to hurry up.

Were the government to immediately increase the allotment to, say, 30 pounds, it would cost $41m a month at most. It could make very clear to the public that the increase was temporary and that the amount would decrease gradually, perhaps over one year, by which time, if all goes well, the reforms should have stimulated more economic activity and created new jobs.

Hopefully by then, the cheaper pound will have made Egyptian exports more attractive abroad, helped bring at least some tourists back and lured in foreign investors. Nine pounds a month to help top up your grocery bill while the economy recovers from its surgery may not seem like a lot, but when you’re living at the edge it could make a major difference. It would also increase public support for an IMF package that holds out great promise for the economy but whose benefits will not be immediately apparent.

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