Sisi's No Sissy: Ending Egypt's Unsustainable Subsidies

♠ Posted by Emmanuel in ,, at 7/24/2014 01:30:00 AM
His sartorial choices may have been Oppa Moammar Style, but Sisi has made a good start.
For the record, let us recall how Egyptian President Abdul Fattah El-Sisi came into power. First, he overthrew the popularly-elected Muslim Brotherhood President Mohamad Morsi over the declining security situation in the country. Next, he successfully ran for the post of the person he mounted a coup d'etat against--there is no other appropriate term--and threw Morsi and his Muslim Brotherhood flunkies in jail to boot. Zero tolerance for intolerance, right? After the disorder of the post-Mubarak period, the part of the electorate that bothered to show up for the most recent elections wanted some (surprise!) Mubarak-style law-and-order by electing another military man.

Yet Sisi may be the leader with the clout to finally kill of financially unsustainable energy and food subsidies that had bedeviled Mubarak and Morsi before him. Both his predecessors vowed to undertake these reforms, but ultimately crumbled in the face of sustained domestic pressure. You can even say with a great deal of accuracy that Sisi out-Mubaraks Mubarak: he is even more vicious in suppressing the Muslim Brotherhood by branding it a terrorist organization in pursuing a secular path. More pointedly, he has finally begun implementing much-delayed reforms. Things have begun with removing fuel subsidies:
So it was a surprise when, as one of his first major policy initiatives, President Abdel Fattah el-Sisi sharply raised fuel prices two weeks ago [by 70%], cutting deeply into energy subsidies, the most expensive single part of the government’s sprawling and expensive subsidy system. Even more surprising, perhaps, has been the absence of widespread civil unrest...

While experts on Egypt’s economy praised the boldness of the move, there was also criticism of how it was put into effect, and of a lack of a clear plan to ease the burden on the country’s most vulnerable citizens. There was no easy way to fix the subsidy program in a country where half the population lives around or below the poverty line and relies on government support. Any mistakes carried considerable risks for the government, which faces a more impatient nation since President Hosni Mubarak was thrown out of office by protesters demanding “bread, freedom and social justice...”
Make no mistake: the causes of Egypt's repeat visits to the IMF largely lie with these subsidies:
The decades-old system, which provides subsidies for energy and food, including sugar, flour and tea, had eaten up more than 26 percent of the national budget annually. It also was criticized for inefficiency, benefiting companies, for instance, rather than Egypt’s poorest citizens. Reforming the system was seen as an attempt by the Egyptian government not just to plug a budget deficit that reached more than 12 percent of G.D.P., but also to impress international lenders, like the International Monetary Fund, as the country searched for new financing beyond the generous sums provided over the last year by wealthy Persian Gulf states.
After initially taking a holier-than-thou attitude towards the Morsi coup, the US now recognizes that Sisi is a far more useful character than his hapless predecessor. Aside from restarting military aid (coup, what "coup"?), the Yanks are probably glad that someone has gotten around to tackling the subsidies issue so that Egypt may finally stop resorting to emergency lending from the Washington-based lender.

Next up given a newly pliant Egyptian public after years of being battered by civil disorder is to remove food subsidies. This may be slightly trickier to pull off technically and politically:
Egypt spends more than $4 billion a year on food subsidies, on which millions of poverty-stricken Egyptians depend. One cash-strapped government after another has resisted tackling problems in the system, fearful of a backlash from the public...
President Abdel Fattah al-Sisi and Prime Minister Ibrahim Mehleb have not announced similar drastic cuts to the food subsidy system but reforms to the way the government hands out the subsidy have been in the making since April in an attempt to decrease waste and corruption.

Under the new system Egyptians use electronic smart cards for bread purchases and around 20 different subsidised goods at grocery stores across the country. The cards follow a points system which raises incentives for Egyptians to buy only as much subsidised bread as they need, helping reduce spending on wheat by as much as five billion Egyptian pounds ($699 million), Hanafi said.
Sisi is likely feeling out the terrain here. Test the waters and all that. Obviously, fuel is less crucial to survival than food. So, he is starting off with smaller reforms to first limit the supply of subsidized foodstuffs made available. In a few months, though, do not be surprised if these subsidies are removed just as the fuel subsidies were.

The white people will come around as they usually do for people who can get things done in a manner that they cannot such as stabilize the law and order situation and wean these countries off the IMF dole. You may have reservations about his anti-democratic methods, but hey, there is something to be said about respecting authoritarian regimes like Sisi's that achieved office through the ballot box no matter what else.