Egyptian Prime Minister hints at imminent subsidy cuts after 15% pension increase

Mostafa Madbouly suggests that bread and diesel subsidies will be reduced by the start of the 2025/2026 fiscal year

A man delivers bread in Cairo's Al Darb Al Ahmar district on Tuesday. Egypt receives five piastres for ever loaf sold, despite spending one pound in baking costs. AFP
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Egyptian Prime Minister Mostafa Madbouly has hinted at an impending reduction in state subsidies on essential commodities by the start of the 2025/2026 fiscal year.

Mr Madbouly placed particular emphasis on the unsustainable burden on the state, particularly in relation to bread and diesel subsidies.

His remarks come a few days after President Abdel Fattah El Sisi raised pensions by 15 per cent.

The government spends 100 billion Egyptian pounds annually ($2.1 billion) to subsidise bread. However, it makes only five billion pounds as it sells a loaf for five piastres, despite a production cost of one pound for every loaf.

“We cannot keep on like this. That is impossible. Impossible. Impossible,” Mr Madbouly said.

“So, it was necessary to return previous conversations we were having before even the economic crisis of the Covid-19 pandemic with regards to shifting the price of subsidised bread so that we can reduce the burden on the state.”

His remarks come at a time of growing discontent among Egyptians over repeated power cuts, an issue that Mr El Sisi addressed on Saturday when he said citizens would pay double their electricity bills without state subsidies.

Mr El Sisi urged Egyptians to come to terms with the daily power cuts.

However, Mr Madbouly said on Tuesday that the power cuts – the reason for many complaints he receives through various Cabinet communication channels – would cease by November or December at the latest.

By 2025, the government needs to “balance the subsidy costs” on diesel fuel, while acknowledging its impact on transport costs and the overall price of goods and services, he said.

“Diesel will continue to be subsidised in the meantime but by 2025, the costs on the state have to be balanced to match its massive expenses,” Mr Madbouly said.

Bills related to energy resources during the current fiscal year amounted to $55 billion, with $33 billion incurred locally.

The remaining $22 billion covered payments for petrochemical imports and foreign partners working on Egypt's gasfields.

“If we didn’t count the costs of importing the petrochemicals needed for local consumption, we would not find a deficit in our budget as a state and that our revenues and expenses are largely balanced,” Mr Madbouly said.

However, independent watchdog reports have rejected some of the Prime Minister's remarks, suggesting that he may be exaggerating the burdens on the state.

According to data from the Central Bank of Egypt, even after excluding the value of petroleum imports, the country would still face a deficit exceeding $16.9 billion in the 2022/2023 budget.

The potential reduction in subsidies has raised significant concerns among the population, particularly the underprivileged who heavily rely on these support systems.

For many Egyptians, raising the cost of bread is a red line that evokes memories of the 1977 Bread Riots, which were triggered by the government's decision to cut subsidies on basic food items as part of an economic reform programme mandated by the World Bank and the International Monetary Fund.

The similarities between the current situation and the events leading up to the 1977 riots are striking, with Egypt once again facing economic challenges and enforcing IMF-mandated reforms that include the potential reduction of bread subsidies.

Egypt has introduced several minimum wage and pension increases in recent years but these have often fallen short of adequately addressing the country's rampant inflation and rising cost of living.

Aside from this week’s 15 per cent increase, the government had previously raised minimum wages and pensions in March 2023 and February 2024, including a 50 per cent rise in the minimum wage for public sector workers.

However, many Egyptians continue to struggle with economic challenges as inflation remains high, reaching 32 per cent in April, which has made it difficult for the increases in wages to keep pace with the rising cost of living.

A 70 per cent depreciation in the value of the Egyptian pound, following four devaluations since March 2022, has also severely cut the population's purchasing power.

Updated: May 30, 2024, 7:05 AM