The Egyptian Initiative for Personal Rights launches its report "Four flaws: Assessing the Egyptian-IMF energy subsidies reform"

Press Release

17 October 2020

The Egyptian Initiative for Personal Rights (EIPR) affirmed that the plan adopted by the government over the past six years to remove energy subsidies was an opportunity to distinguish between what is considered as "good subsidy" and "bad subsidy", thus strengthening the former and limiting the manifestations of the latter. It was also an opportunity to develop the governance framework in governmental agencies responsible for the subsidy system, to avoid any potential corruption or squandering of public money.

However, Egypt has missed that opportunity, so far, according to the paper published by EIPR, on October the 17th, titled: "Four flaws: Assessing the Egyptian-IMF energy subsidies reform". The publication coincides with the International Day for the Eradication of Poverty. The paper depends on the principle: "clean energy guaranteed to all at reasonable prices", which is the seventh goal of the sustainable development goals that the Egyptian state adopted and is supposed to achieve (Egypt 2030).

"The paper explains how the energy subsidy reduction plan has failed to protect millions of Egyptians from falling below the poverty line. The situation today is that poor and middle-income Egyptians subsidize the energy used by the rich," according to researcher Salma Hussein.

Since 2019, the government has been dodging its responsibility in achieving energy justice, as it is maintaining prices at a high level for individuals, while reducing energy prices for companies. The paper found that one company received subsidies amounting to 3.3 billion EGP in the first half of 2020, and the volume of subsidies would double by the end of the year, according to the same paper, most of which resulted from reducing the price of natural gas. “This comes at a time when the government decreased the budget for food subsidies in the year of the pandemic and the economic crisis,” Hussein notes.

 The International Monetary Fund (IMF) encouraged reducing energy subsidies in order to achieve savings in the public budget that could be redirected to social spending, education and health. But according to the paper's calculations, the savings were only about 1.1 percent of total public spending in 2018-2019 (the latest official data available), despite repeated hikes in energy selling prices six years ago.

Also, the funds directed towards social spending were not sufficient to maintain the standard of living of citizens that prevailed before the implementation of this economic program. As a result, the real income of most Egyptian families decreased.

 The agreement with the IMF led to a reversal of a basic principle in reducing subsidies, which is gradualism, as a gradual increase in energy prices is necessary in order to mitigate the inflationary effects, so that citizens do not suffer from a deterioration of their living standards. "After the pound was floated, the energy subsidy bill decreased by more than 70 billion EGP in one year, an amount that exceeds all spending on health," according to Hussein.

Electricity is another model for this result. Despite the definition of both the World Bank and the United Nations that subsidizing electricity for the poor is "good" subsidy, the Egyptian plan supported by both the World Bank and the IMF caused cumulative increases in the electricity bills paid by the poor and middle-income segments that reached 218% and 271%, respectively, from 2011 to 2017-2018.

Finally, the paper clarifies that government agencies, namely the Egyptian General Petroleum Corporation and the Egyptian Electric Holding Company, both of doubtful management efficiency, receive billions of state subsidies, even if they are profitable (or the subsidy exceeds their losses if they are losing), and these bodies redistribute these subsidies to companies and homes, without any transparency, disclosure or participation. This model comes in contrast to other bodies such as the railway, whose losses are only financed by the government. All these mistakes led the poorest segments to pay a high bill.