CAIRO: Egypt plans to do away with its antiquated subsidies program, the prime minister said Thursday, but the country s president of 26 years opposed the move, suggesting it would require grassroots discussions first.
The opposition has also criticized such a measure in a nation where a fifth of the population lives under poverty line.
Premier Ahmed Nazif said the nearly half-century old system of subsidizing food, energy and services will be replaced by a program that includes cash paid only to the needy.
This will ensure “social justice, said Nazif, a reform-minded head of government and close ally to President Hosni Mubarak.
“The Egyptian people have long been convinced subsidies go to those who don t deserve them, Nazif said in an interview with official Radio Cairo.
But hours later, Mubarak told pro-government newspapers en route to Lisbon for the weekend EU-Africa summit that “no one has the right to lift or cancel subsidies without the approval of the president.
“I will not lift the subsidies … the price of bread will not go up, Mubarak, who has ruled Egypt since 1981, told daily Al Gomhuria s early Friday edition.
Mubarak likely sought to ward off fears of the measure, but changes could still take place, as he added there was a need for “community dialogue … to reach an appropriate formula to allow the subsidies reach those really in need.
Nazif, the prime minister, claimed subsidies have already cost the government some LE 57 billion (about $10 billion) in this fiscal year, which ends next June.
That figure is dangerously close to Cabinet expectations of subsidies spending reaching LE 64.5 billion (about $12 billion) in this fiscal year. By comparison, subsidies spending were LE 51 billion (about $9 billion) in the previous year.
Two months ago, the government said it would also abolish gas and electricity subsidies for energy-intensive industries over the next three years, to help reduce the budget deficit.
Trade and Industry Minister Rachid Mohamed Rachid has said the subsidies, allegedly the main factor behind the country s deficit, would be gradually reduced, and that eventually, prices would be based on the international market.
Opposition activists warn such moves could spark wide social unrest – especially among millions of poverty stricken Egyptians who rely heavily on government subsidies for food, transportation, water and energy.
“This is a red line the government should not even think to cross, said Mahomoud El-Askalani, of the Citizens Against High Cost of Living. His group was recently set up to lobby against government plans to abolish subsidies and other social aid programs.
It includes opposition parliament members, intellectuals and political activists who blame the government economic policies for recent hikes in prices.
The World Bank in a recent report on Egypt estimated that the number of Egyptians living below poverty line – set at roughly $2 a day – rose from 16.7 percent in 2000 to 19.6 percent in 2005. Egypt has a population of 78 million people.
However, in September, the Bank ranked Egypt as the world s most improved economy for investors in 2007, thanks to the government s wide-ranging reforms in banking, privatization, sales of government-owned businesses to local and foreign investors, amends in laws to encourage foreign investment and set-up of funds to help new, small and medium-sized businesses.
Opposition blame the reforms for sending prices sky rocketing but the government said inflation rate stood at 8 percent in July, lowest since June 2006.
Under Egypt s socialist-oriented regime of late President Gamal Abdel Nasser in the 1960s, subsidies were introduced in a state-controlled wage system.
Since then, staples like bread, sugar, cooking oil and beans, as well as public transportation and petrol have been heavily subsidized. While foodstuffs are supplied at lower prices through ration cards to the poor, all Egyptians enjoy low fairs in public transportation and cheaper energy.
According to a recent government study, about 95 percent of ration-card holders, most of them civil servants, are in favor of keeping the current subsidies system.
There are also security implications.
In 1977, a wave of protests against price hikes for bread threatened to overthrow the regime of former President Anwar Sadat. In 1989, authorities brutally quelled protests by police recruits demanding higher wages.
This week, hundreds of civil servants protested outside the government headquarters in Cairo, demanding wage increases to keep up with rising prices and inflation.
Police used metal cages to prevent the protesters, employees of Egypt s Tax Agency, from reaching the government or the nearby labor ministry building.
