As Egypt Negotiates IMF Loan, Food And Fuel Prices Soar
April 4, 2013
Two years after the revolution, Egypt is in a deep economic crisis. It's running out of money to purchase crucial imports like wheat and fuel, both of which are subsidized by the government, and an infusion of cash is desperately needed.
While a delegation from the International Monetary Fund is in Cairo continuing negotiations on a $4.8 billion loan, Egyptians are strained by the rising costs of food — and the gas needed to cook it.
For Mosaad el Dabe, it's a disaster.
The government just doubled the price of a canister of cooking gas as part of an energy reform package needed to satisfy the conditions of the IMF loan.
At a government distribution center, Dabe's bicycle is loaded with six of the canisters, which he'll sell for a minuscule profit — making less than 30 cents on each one. That means less food for his four children.
"Raising the prices will get us this loan," he says. "But when they raise the prices on the poor, how do we live, how do we eat?"
It is a conundrum. Egypt's foreign reserves have dwindled to about $13.5 billion from $36 billion before the 2011 revolution. The government is already dealing with a huge budget deficit, and at least a quarter of its spending goes to the fuel and wheat subsidies.
Soon, the government may not be able to afford to import these commodities. But lifting the subsidies could lead to even broader unrest in a country where the population is reeling after more than two years of political upheaval, economic downturns and sporadic violence.
Moustafa Bassiouny, an economist at the Signet Institute in Egypt, says the crisis is mostly driven by very low levels of economic growth. He says the subsidies distort the market and are the major reason for the deficit. The government's reserves will only last for another three months, if that, he says.
But lifting subsidies on cooking gas is not the answer, Bassiouny says. It's a very small savings on a commodity that the poor people of Egypt need, while other subsidies that benefit the well-off are left untouched.
"The government is directly channeling the full effect of the subsidy removal to the poorest segments of society," he says. "This is not only fiscally ineffective but morally inconsistent."
Meanwhile, the cost of food is soaring. For example, a chicken has gone from about $3 in 2012 to $6 this year; the price of rice is 28 percent higher, and the cost of bottled water has doubled.
Because of fuel shortages, there are daily power outages in different parts of Cairo, and the situation is expected to get much worse during the blistering summer months.
Getting the IMF loan, Bassiouny says, would serve as an international endorsement that it's still OK for foreign companies and governments to invest in Egypt.
Hamdi Fawzy Hassan's bakery makes government-subsidized bread and sells it for the equivalent of a penny a loaf. If the government cancels the subsidies, he says, the poor won't have bread.
Across town, an Egyptian housewife picks through the vegetables at an open-air market. Hala Sadek rarely buys produce anymore. She can't afford it.
People here say if the government can't fix the situation, the next revolt will be led by the hungry.
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