After all the talk about the need to dramatically reduce Egypt’s fuel and food subsidies as part of a range of reforms to secure the country’s long-term economic future, the overnight 78 per cent rise in fuel prices was still a painful reality check for ordinary Egyptians. While the move had been mooted well in advance and new president Abdel Fattah El Sisi has a commanding electoral mandate to fix Egypt’s ailing economy, it still left millions concerned about their ability to make ends meet.
Few would question the case to change the decades-long use of subsidies that ensured fuel and food were affordable for those at nearly every level of Egyptian society but that also consumed one third of the government’s budget. As the increase in fuel prices begins to trickle down into the wider economy, the question instead is not whether this is the right course of action but how it might be best implemented without unnecessarily impoverishing ordinary workers and weakening an already struggling economy.
As The National reported yesterday, the prediction is that this measure will be in Egypt's long-term interests but will come at a short-term hit to GDP. This kind of tough love follows the textbook approach of the Washington Consensus, a term coined to describe the kind of intervention promoted for crisis-wracked economies by the International Monetary Fund, World Bank and the US Treasury Department.
But in countries like Egypt, where there is desperate poverty and effectively no social safety net, consideration also needs to be given to the human cost that follows from the use of harsh economic medicine. In this, Egypt is fortunate to have solid financial and political support from the UAE and other Gulf countries committed to ensuring that it emerges from its troubles and becomes strong and stable.
One could argue that despite the dramatic economic measures of the kind announced by Mr El Sisi with the fuel subsidy, they could still be eliminated via a series of progressive reductions to avoid the shock factor on the economy – and on ordinary Egyptians – being so onerous.
Nobody needs to be reminded that Egypt is in a delicate state. A measured approach to fixing its economic woes without inflaming popular anger – and sending its citizens once again out on the streets in protest – is one that should be given credence.
