Source: Govt to increase subsidized bread prices by 300% starting July

The government is set to increase the price of subsidized bread by around 300 percent when the upcoming fiscal year commences in July, a source familiar with government deliberations told Mada Masr on condition of anonymity. 

The increase will push the price of subsidized bread from LE0.05 to LE0.20 per loaf.

Analysts who spoke to Mada Masr believe this move will exacerbate the plight of millions of Egyptians who depend on subsidized bread to make ends meet, as they also struggle with challenging economic conditions. 

The source informed of the government negotiations said that representatives from the Bakery Owners Division of the Cairo Chamber of Commerce convened with Supply Minister Aly Meselhy on Monday evening to discuss increasing the government’s allocation to bakery owners to cover the cost of subsidized bread in light of rising production costs. However, the division’s representatives were surprised by the minister's proposal to raise the price of subsidized bread, requesting to defer discussions on increasing production costs to a later meeting. 

During the same meeting, Meselhy announced the ministry's decision to withdraw from a proposal to introduce corn in bread as a replacement to 20 percent of wheat, a suggestion put forth by President Abdel Fattah al-Sisi on Sunday to reduce wheat consumption. Division members drew the minister's attention to the need for new investments in mills to accommodate corn milling, as well as Egypt's reliance on importing most of its corn consumption, which would mean payment in foreign currency. Furthermore, concerns were raised regarding the poor quality and taste of the bread made with a corn and wheat blend. 

The government's move to raise bread prices comes days after President Abdel Fattah al-Sisi’s directives to alleviate the "burden" on the state budget. "This LE0.05 loaf of bread costs me LE130 billion in subsidy," Sisi said, which would mean that each loaf of subsidized bread costs the government LE1.25. 

However, publicly budgetary figures and estimates provided by sources in the bread sector to Mada Masr previously provide a different account of the government’s bread subsidy allocation. 

The current fiscal year's budget indicates that bread subsidies cost only LE91.5 billion, projected to rise in the coming fiscal year to LE98 billion. As for the cost of a loaf of bread, the coming fiscal year’s budget has it pegged at LE1.06, which is a figure in line with the range of LE0.9 to LE1.1 that four bakeries division sources estimated when speaking to Mada Masr earlier this week.

Prime Minister Mostafa Madbuly reiterated Sisi’s statements on Monday, stating that the government bears a LE100-110 billion subsidy bill to provide affordable bread. "During the unprecedented crisis of the recent period, we wanted to spare the citizens from this burden, leading the state to bear it on their behalf for as long as it was feasible. But can we sustain this forever? No, it's impossible," Madbuly said. 

Hours after Madbouly's remarks, Cabinet spokesperson Mohamed al-Homsany confirmed that there is a "proposal to slightly adjust bread prices, allowing the state to take on a smaller portion of the cost while ensuring not to overburden the citizens." 

A financial analyst at an national investment bank who spoke to Mada Masr on condition of anonymity said that the government's efforts to reduce its subsidy bill align with the International Monetary Fund’s guidelines at the cost of overlooking potential repercussions on citizens. 

"The entire bread system does not cost LE100 billion. The Finance Ministry borrows more than this figure weekly from treasury bills and bonds. On the other hand, in a country where at least 32 million out of 70 million citizens fall below the poverty line, bread serves as a vital component of their daily meals to stave off hunger, especially as citizens' reliance on bread has surged due to rising inflation," the analyst said. 

As an indication of the dire economic situation, the analyst said that consumption of cheese has unexpectedly risen despite price hikes in food items early this year. He attributed this to the fact that "companies thought that when cheese prices increase, demand would decrease. But the opposite happened because although cheese became pricier, it is still the easiest and cheapest thing to eat with bread, serving as a breakfast option even cheaper than a street ful sandwich, and both rely on bread. Therefore, when the price of bread doubles or triples, it will affect a very large portion of the population." 

The financial analyst believes the government’s aim is to minimize expenditures, including subsidies, in the upcoming fiscal year. However, the effects of all subsidies on the budget are not "catastrophic" when weighted against their benefits, they added. 

According to the general budget draft for the upcoming fiscal year, subsidies, grants and social benefits constitute 11.5 percent of budget expenditures, while debt servicing for loan repayments and interest payments make up for over 61 percent of budget expenditures, totaling around LE3.4 trillion.

Wael Gamal, the head of the Economic and Social Rights Unit at the Egyptian Initiative for Personal Rights, told Mada Masr that the government's cost-cutting efforts are driven by the goal of achieving a primary surplus of at least 3.5 percent through harsh austerity measures. 

However, according to Gamal, achieving a primary surplus does not hold any real significance, as it merely indicates the government's ability to cover its expenses in the absence of debts. "But when you have debts consuming more than half of the budget, what have you achieved with this surplus?" he asks. 

Gamal pointed out that even institutions with liberal economic dispositions, such as the World Bank, emphasize the importance of supporting subsidized bread. In 2010, the World Bank published a study concluding that addressing leakage in food subsidies would save nearly 73 percent of the cost. The same study stated that even with such leakage and despite the significant cost to the state budget, food subsidies saved 9 percent of Egyptians from falling below the poverty line during the global economic crisis in 2008. 

"This underscores the importance of bread subsidies during the current period, where even the middle class is shrinking and struggling under inflation. It would have been more appropriate for the government to explore ways and negotiate to adjust interest rates, where every one-percent increase costs the state LE70-90 billion,” Gamal added. “If interest rates were reduced by one percent, all subsidies would be covered without burdening the people.”