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Monday, 10 October 2022

Is bread subsidy reform back on the table?

Supply Minister revives talk of bread subsidy reform in the House of Representatives: Supply Minister Ali El Moselhy called on MPs to form an ad hoc committee to look into possible changes to the country’s massive bread subsidy program. El Moselhy made the call during a meeting of the House Agriculture Committee, which was discussing a USD 500 mn loan the World Bank recently approved to support our wheat imports.

The inside track: El Moselhy wants representatives of the House’s agriculture, economic affairs and social solidarity committees to weigh in on reforming the program to bring wheat imports down. The goal is to reduce pressure on the state budget, curb demand for FX, and “make sure [subsidies] go to citizens who are really in need of them,” El Moselhy said.

One alternative: cash transfers for the neediest. El Moselhy revived a proposal to replace bread subsidies with cash support to the most vulnerable families, according to Rep. Hesham El Hossary, who chairs parliament’s agriculture committee. That’s in line with guidance from the World Bank, which said in its latest report on growth in the MENA region that food and energy subsidies are far more expensive for the state than “allowing prices to increase and supporting just the poorest 10% of the population with a cash transfer.”

El Moselhy’s comments could put smiles on faces at the IMF: While bread subsidy reform won’t likely form an explicit condition of the imminent loan to Egypt from the IMF, the multilateral lender has called on us to take “decisive” steps toward fiscal and structural reforms that would address the state’s budget deficit. BNP Paribas analysts expect that subsidies are likely to be curtailed once the inflationary effects of the Ukrainian conflict start to subside.”

Watch this space: Top Egyptian officials are in Washington, DC, this week for the IMF and World Bank annual meetings.

BACKGROUND- This is the first talk of reforming bread subsidies in a while: Plans to overhaul the longstanding bread subsidy system — which offers loaves at below-market prices to more than 60 mn people — have been on hold since war broke out in Ukraine. The war upended global commodity markets, driving food and energy price inflation at the same time as supply chain snarls were already driving prices up. As the world’s largest importer of wheat — and with some 80% of its imports traditionally coming from Russia and Ukraine — Egypt has been particularly exposed to the shock. The government has been stepping up support to the most vulnerable amid the cost of living crisis, bringing another 1 mn families under its Takaful and Karama social security program and allocating more funds to subsidized bread.

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