Egypt 'plans to cut bread subsidies on IMF advice', provoking fears of unrest

The price of bread is set to rise according to government sources as Egypt cuts subsidies in response to IMF demands.

3 min read

06 February, 2019

The cut to bread subsidy could lead to a sudden hike in bread prices [Getty]

Bread subsidies in Egypt are set to be slashed in response to IMF demands according to sources in the Egyptian government.

The proposed measures would affect 78.6 million people who currently benefit from subsidised bread and flour. Bread is Egypt’s second largest expenditure in terms of commodity subsidies, after petroleum products.

But increasing prices of the essential foodstuff could spark a new wave of protests. Similar measures led to riots in Jordan in June 2018, and have sparked the current protests challenging the regime in Sudan.

One way Egypt could avoid direct price hikes but execute the cuts is by reducing the number of bread loaves per package and offer it for the same price, a process known as 'shrinkflation'.

The IMF is thought have encouraged the proposed subsidy cuts that would affect millions. Sources told The New Arab Arabic the reduction in the subsidy by 25 to 30 percent was agreed to by the Audit Committees of the IMF in November 2018.

The New Arab has reached out to the IMF for comment.

In November 2016, Egypt reached an agreement with the IMF for a $12 billion loan package to be delivered in tranches.

In return, Egypt would have to implement certain conditions such as liberalising the exchange rate, gradually abolishing subsidies on basic commodities, and significantly reducing the number of those employed by the government in public administration

Egyptian officials have delayed announcing the decision in fear of a negative backlash from the public, according to the sources, but it is reportedly set to be announced by Prime Minister Mostafa Madbouly in the coming months.

Protests have erupted around the world in recent months due to higher prices and difficult economic conditions brought about by austerity measures. The "yellow vests" took to the streets in France due to the increase in fuel prices, which was touted as an environmental measure; and the citizens of Sudan are protesting as a result of high food prices.

Egyptians have suffered in the past four years from unprecedented high prices, high rates of poverty and domestic and external debt.

Since the 2011 revolt that toppled former President Hosni Mubarak, the economy of the Arab world's most populous country has received multiple shocks caused by political instability and security issues.

Egypt has imposed harsh austerity measures to try to right the economy and reduce the budget deficit, including hiking fuel prices and electricity rates.

The International Monetary Fund board on Monday approved a $2 billion loan payment to Egypt, the latest in the country's three-year aid program.

The latest installment brings the total paid to Cairo to about $10 billion since the loan deal was signed in November 2016.

The previous loan tranche was approved in July of last year but this fourth review of Egypt's program had been awaiting board approval since October, when IMF staff and government officials had finalized it.

IMF chief Christine Lagarde announced January 25 that the final details had been worked out, clearing the way for the payment.

Lagarde has praised the "substantial progress" made by the Egyptian government on the reforms, which have boosted growth and cut unemployment to the lowest rate since 2011.

But she also urged the government "to press ahead with structural reforms that facilitate private sector-led growth and job creation."

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