Food subsidies for low income households eroded as government hikes food prices to match inflation

Beginning on Saturday, the government increased the cost of eight essential goods for Egypt’s lowest-income households.

Family budgets across the country are under immense pressure at present, as purchasing power dips in the wake of a currency devaluation and inflation hits its highest rate in four years. Amid a foreign currency shortage and looming debt repayments, the government also tightened conditions for imports earlier in the year, constricting the supply of goods and sending prices further upward.

While an exceptional cash support package, set to last for six months, was introduced in September to support the low-income households who qualify for a supply card from Egypt’s Supply Ministry, the real value of the government’s subsidy program has declined, while experts anticipate that inflation is still trending up.

A supply card, which entitles the holder to purchase a selection of basic household foods and goods such as lentils or washing powder, normally subsidizes the cost of goods to the value of LE50 per individual (currently around US$2.60), for a maximum of four individuals per each ration card. For a fifth individual, the amount drops to LE25.

The value has remained the same since they were set in July 2017, which means that inflation in the cost of goods has effectively eroded the value of the subsidies since then. 

The following figure demonstrates the impact of inflation on purchasing power per capita for those using supply cards since the new cash values were introduced in mid-2017. The LE50 per-person value is divided by the unit price of each commodity, to represent the quantity of a particular item that a one-person household would be able to afford per month.

Exceptional additional support rolled out in early September saw households entitled to an additional LE100.

While in 2017 for example, a person could buy four cartons of processed ghee to cook with, they are now able to purchase just one, while instead of the 15 cans of tomato sauce they could afford in 2017, they can now purchase only eight.

The Supply Ministry increased the cost of goods available through subsidy cards in order to keep the subsidy program in step with commodities inflation, said Heba al-Leithy, a statistics professor at Cairo University and supervisor of the income and expenditure program for the government statistics agency.  “By raising the prices of food commodities, the Supply Ministry is trying to keep the difference between prices on the open market [and prices via subsidy cards] narrow,” Leithy told Mada Masr, noting that the government fears a wide margin could fuel a black market whereby goods available via the subsidy program are resold at marked up prices.

But the government needs to do better than providing temporary cash support, and ensure the supply cards’ purchasing power is adjusted in step with inflation. 

Inflation is also expected to continue. On Saturday, for example, a six-month export ban expired, meaning that pasta, flour and oils can now be sold outside the country again. The ban’s removal and its effect on the supply of goods as traders turn to foreign buyers is anticipated to lead to price hikes in the local market.

Meanwhile, sources who spoke to Mada Masr in recent months anticipate that with the government in dire need of raising its foreign currency liquidity through negotiations with external partners, many of whom are pushing for a devaluation, the value of the Egyptian pound is likely to continue its decline over the coming year, further diminishing the population’s purchasing power. 

At the same time, the International Monetary Fund, from which Egypt is currently seeking a loan, has advocated for the government to cut its spending on subsidies, a policy that the government fears could drive a loss of public confidence.