Gov to set prices despite subsidies’ unsustainability

Hazem al-Beblawi’s government said on Monday it was looking into setting the prices of a number of commodities to control inflation, despite earlier statements from the prime minister that Egypt’s subsidy regime is unsustainable.

Inflation in July was the highest in two years. According to the Central Bank of Egypt, the headline Consumer Price Index fell from 10.3% in July to 9.7% in August.

General Mohamed Abu Shadi, the minister of supply and internal trade, said in a press conference following a Cabinet meeting on Monday that his ministry may set the prices of goods for a period of between one and five years. The state’s flagship newspaper Al-Ahram reported that meat was one of about 20 to 30 “strategic commodities” but did not specify what the other goods were.

In an interview with Beblawi before he took the post of prime minister, he commented on subsidy reform as a necessary evil. “The government cannot continue to subsidize fuel. We will reach a point where the budget does not have enough resources and we will have to use the worst policy — printing money, which causes inflation,” Beblawi told Mada Masr in July, focusing specifically on fuel subsidies. 

Much of Egypt’s important commodities, including food, are imported. The economy is particularly susceptible to fluctuations in imported commodes, such as fuel and wheat, which are subsidized by roughly 30% of the state budget, which well outstrips health and education budgets.

The Egyptian trade deficit in June fell by 11.2%, according to the Central Agency for Public Mobilization and Statistics said. 

In a statement on foreign trade cited by the state-owned Middle East News Agency, the statistics body said that it fell to LE19.98 billion from LE22.5 billion in June 2012. 

In June 2010, the deficit was only LE9.6 billion.

The economy’s most important inflows of cash were tourism and investment, which has been heavily hit since former President Hosni Mubarak was overthrown.