The Subsidy System in Egypt: Alternatives for Reform

Alleviation of the fiscal burden of subsidies and the need for reforms are at the core of the reform agenda of public finances in Egypt. Subsidies have grown in size over time, encourage excessive consumption and fail to achieve the objectives of social equity. Hence, they involve a lot of waste of government resources that could be better targeted to address the growing social agenda by availing support to the most vulnerable groups. Following an overview of the state of public finances and the burden of subsidies, this edition of Policy Viewpoint considers the specifics governing the current system of fuel and food subsidies. It demonstrates its growing cost and inequity, and presents specific proposals to gradually phase out price subsidies to ultimately avail savings for targeted subsidies to the most vulnerable groups. To conclude, it emphasizes the importance of subsidy reform to fiscal sustainability and the need to establish complementary policies to secure the objectives of higher social equity and containing inflation.