Egyptians are grappling with the impact of a significant bread subsidy cut, the first in decades. The price of subsidised small loaves of flatbread has quadrupled, making it even harder for millions of people to make ends meet. The government raised the price of subsidised bread from 5 piasters to 20 piasters per loaf. While still heavily discounted, this increase affects over 70 million people who rely on these loaves.
The prices of daily sustenance has not increased for over 30 years, which may come as an economical shock for many Egyptian households. The government increased the price of subsidised bread from LE0.05 to LE0.20 per load at the start of this month. According to experts, this economic crisis could lead to an increase in the poverty and school dropout rate, as well as a decline in food security.
The Houthi attacks in the Red Sea have had a negative effect on the Egyptian economy, specifically the manufacturing and textile industries. According to Osama Rabie, head of the Suez Canal Authority, the diversion of ships has resulted in a 40 percent drop in Suez Canal revenues, amounting to “hundreds of millions of dollars,” per the International Monetary Fund (IMF). This decline has injured Egypt’s already struggling economy at a time of a foreign currency shortage where it is needed to import wheat and other goods in order to repay its shocking foreign debt.
The decision to raise prices was politically sensitive, as cheap bread is crucial for many Egyptians due to widespread poverty. About two-thirds of the population benefit from bread subsidies, which are based on income. However, the monthly bill for a family of four could now rise significantly. Egypt faces high inflation (32.5% in April) and a large debt servicing bill. The government aims to balance economic realities while managing public discontent.
The following contributed to the decision for the subsidy cut.
Rising Wheat Import Bill: Egypt’s government faced mounting pressure due to the increasing cost of wheat imports. The decision to raise the price of subsidised bread was a politically sensitive one that had been deferred for years. Cheap bread is crucial for many Egyptians, given the widespread poverty in the country.
Historical Sensitivity: The price of subsidised bread has remained steady since the 1980s, despite repeated rounds of austerity reforms. Previous governments hesitated to increase the price due to fear of public backlash. An attempt to change the subsidy system in 1977 led to riots. Instead of raising prices, the government had previously tried to restrict eligibility and reduce the weight of the loaves.
The subsidy cut directly affects the most vulnerable segments of society, especially pensioners who rely on subsidised bread and are barely getting by. Many Egyptians will have to work extra to supplement their income and support their families.
The decision to raise prices was rushed because the state did not want to wait until the beginning of the fiscal year. This would allow more time for the prices of fuel and electricity to increase, in order to prevent a simultaneous spike in prices. According to Sherine al-Shawarby, an Economics professor at Cairo University, the government used already high inflation rates as an opportunity to increase prices, hoping that the LE0.15 would be inconspicuous.
Egypt’s decision to raise subsidised bread prices reflects the delicate balance between economic necessity and social welfare. As inflation rises and debts mount, the government faces tough choices in maintaining a safety net for its citizens. Despite the challenges, Egypt continues to grapple with economic reforms and social support. The impact of this subsidy cut remains a significant concern for poor households.
ALSO READ: High oil prices amid escalating tensions in the Middle East
