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UPDATE 2-Egypt's Sisi hikes social spending to ease austerity pain
June 21, 2017 / 11:02 AM / 5 months ago

UPDATE 2-Egypt's Sisi hikes social spending to ease austerity pain

(Adds details and quotes)

By Arwa Gaballa

CAIRO, June 21 (Reuters) - Egypt’s budget for the next 12 months will include a 75 billion Egyptian pound ($4.17 billion) social spending package, the finance ministry said on Wednesday, a day after President Abdel Fattah al-Sisi announced measures to ease the pain of austerity for low-income Egyptians.

Sisi is under pressure to balance IMF-austerity reforms to fix Egypt’s economy while limiting the financial impact on poorer Egyptians who are key to re-electing him for a second term in next year’s presidential election.

“The social package, which will benefit more than 90 percent of citizens will, as announced by the president, include an increase in monthly food subsidies,” a finance ministry statement said.

Sisi on Tuesday announced a raft of new spending, including more than doubling monthly food subsidies effective starting July 1, a freeze to taxes on agricultural lands, and an increase of 15 percent in civil servant pensions.

The lion’s share of the social spending allocation will be channeled into monthly food subsidies, which will increase to 50 pounds per person from 21 currently, a hike that will cost the state an additional 38 billion pounds in the coming fiscal year’s budget, which begins in July.

The social package aims to compensate Egyptians battered by inflation that hit a three-decade high after the central bank floated the pound currency in November as part of a $12 billion International Monetary Fund lending programme.

Since the flotation, Egypt has seen its pound’s value fall by half and inflation exceed 30 percent.

With the goal of putting Egypt’s economy back on track after years of turmoil drove foreign investors and tourists away, the three-year IMF programme also includes higher taxes and energy subsidy cuts.

The government aims to maintain a previously announced budget deficit target of 9.1 percent despite the introduction of the new social package, the finance ministry said.

MOST VULNERABLE

Economists said the social package is in line with the IMF deal which they expected would hit the country’s poorest.

“We knew the reforms would put pressure on vulnerable groups, and compensating them was always part of the IMF deal,” said Mohamed Abu Basha, EFG Hermes economist.

Reham El-Dessouki, an economist at Arqam Capital, said the social package could have a positive effect as it may prevent a decline in economic growth that is dependent on spending power.

“It also prevents the undermining of social and political support for the economic reform programme by providing support for low- and middle-income Egyptians in the first year or two of the programme, which are the most difficult,” Dessouki said.

Sisi had promised to protect the country’s poorest from the outcome of economic reforms necessary to secure the IMF programme, but analysts say his popularity has suffered in recent months as prices soared.

This year, Sisi has often praised Egyptians for coping with austerity measures and promised the outlook will improve, constantly touting financial figures in his speeches to show an improving economy.

“Our foreign reserves have increased by unprecedented rates,” Sisi said in a speech on Wednesday. “This is only the beginning ... our increasing monetary reserves, exports and local production - all indicators that calm our hearts and assure us that we’re on the right path.” ($1 = 18.0000 Egyptian pounds) (Reporting by Arwa Gaballa; editing by Patrick Markey)

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