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Sunday, 29 January 2017

Direct payment can help the needy better than subsidies

Subsidies are a very inefficient way of helping the poor, especially with fuel subsidies, writes Patrick Werr for The National. Perhaps it would be much better just to give people direct payments and let them decide how to spend it by themselves, he adds. When petrol is artificially inexpensive, people are more likely to buy bigger cars and live farther out of town. If natural gas is cheap, investors will put their money into energy-intensive industries that if left to the market would be uneconomical. If bread is at almost no cost, people will feed it to their chickens, goats and rabbits at great cost to the state, says Werr. The devaluation raised the cost of government subsidies beyond targets set with the IMF, Planning Minister Ashraf El Araby had said previously. Egypt promised the IMF fuel prices would increase, or other measures would be taken to offset extra costs, if the EGP devalues further. Regardless of whether Egypt chooses to distribute the credit universally, or transfer credit to the smart cards used for subsidized bread, it would “save itself a bundle of money from a rapid elimination of subsidies, and the country as a whole would win.”

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