Middle East
3:19 am
Thu April 4, 2013

As Egypt Negotiates IMF Loan, Food And Fuel Prices Soar

Originally published on Thu April 4, 2013 12:30 pm

Two years after the revolution, Egypt is in a deep economic crisis. It's running out of money to purchase crucial imports like wheat and fuel, both of which are subsidized by the government, and an infusion of cash is desperately needed.

While a delegation from the International Monetary Fund is in Cairo continuing negotiations on a $4.8 billion loan, Egyptians are strained by the rising costs of food — and the gas needed to cook it.

For Mosaad el Dabe, it's a disaster.

The government just doubled the price of a canister of cooking gas as part of an energy reform package needed to satisfy the conditions of the IMF loan.

At a government distribution center, Dabe's bicycle is loaded with six of the canisters, which he'll sell for a minuscule profit — making less than 30 cents on each one. That means less food for his four children.

"Raising the prices will get us this loan," he says. "But when they raise the prices on the poor, how do we live, how do we eat?"

It is a conundrum. Egypt's foreign reserves have dwindled to about $13.5 billion from $36 billion before the 2011 revolution. The government is already dealing with a huge budget deficit, and at least a quarter of its spending goes to the fuel and wheat subsidies.

Soon, the government may not be able to afford to import these commodities. But lifting the subsidies could lead to even broader unrest in a country where the population is reeling after more than two years of political upheaval, economic downturns and sporadic violence.

Moustafa Bassiouny, an economist at the Signet Institute in Egypt, says the crisis is mostly driven by very low levels of economic growth. He says the subsidies distort the market and are the major reason for the deficit. The government's reserves will only last for another three months, if that, he says.

But lifting subsidies on cooking gas is not the answer, Bassiouny says. It's a very small savings on a commodity that the poor people of Egypt need, while other subsidies that benefit the well-off are left untouched.

"The government is directly channeling the full effect of the subsidy removal to the poorest segments of society," he says. "This is not only fiscally ineffective but morally inconsistent."

Meanwhile, the cost of food is soaring. For example, a chicken has gone from about $3 in 2012 to $6 this year; the price of rice is 28 percent higher, and the cost of bottled water has doubled.

Because of fuel shortages, there are daily power outages in different parts of Cairo, and the situation is expected to get much worse during the blistering summer months.

Getting the IMF loan, Bassiouny says, would serve as an international endorsement that it's still OK for foreign companies and governments to invest in Egypt.

Hamdi Fawzy Hassan's bakery makes government-subsidized bread and sells it for the equivalent of a penny a loaf. If the government cancels the subsidies, he says, the poor won't have bread.

Across town, an Egyptian housewife picks through the vegetables at an open-air market. Hala Sadek rarely buys produce anymore. She can't afford it.

People here say if the government can't fix the situation, the next revolt will be led by the hungry.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

Let's talk about a crisis, now, in Egypt - an economic crisis two years after the ouster of President Hosni Mubarak. The new government is running out of funds needed to purchase crucial imports, like wheat and fuel. Both those commodities are heavily subsidized. But with foreign currency reserves at a record low, Egypt needs cash.

This is adding urgency to a visit by a delegation from the International Monetary Fund. That delegation is in Cairo now, to negotiate over a $4.8 billion loan. NPR's Leila Fadel reports.

(SOUNDBITE OF WORKERS UNLOADING TRUCKS)

LEILA FADEL, BYLINE: It's just after 3 p.m., and workers unload cooking gas canisters at this government distribution center.

The government has just doubled the price for each canister, as part of an energy reform package needed to satisfy the conditions of the IMF loan.

MOSAAD AL DABE: (Foreign language spoken)

FADEL: But for Mosaad al Dabe, it's a disaster. The back of his bicycle is loaded with six canisters he will sell for a miniscule profit. He will make less than 30 cents for each canister, and that means less food for his four children.

AL DABE: (Foreign language spoken)

FADEL: Raising the prices will get us this loan, he says, but when they raise the prices on the poor, how do we live? How do we eat? It is a conundrum. Egypt's foreign reserves have dwindled to about $13.5 billion, from 36 billion before the 2011 revolution here. The government is already dealing with a huge budget deficit, and about a quarter of its spending goes to subsidies for fuel and wheat. Soon, the government may not be able to afford to import these commodities.

But lifting the subsidies could lead to even broader unrest, in a country where the population is reeling after more than two years of political upheaval, economic downturns and sporadic violence. Moustafa Bassiouny is an economist at the Sigma Institute in Egypt.

MOUSTAFA BASSIOUNY: It is definitely an economic crisis right now that is driven mostly by very low levels of economic growth.

FADEL: Bassiouny says that the subsidies distort the market, and are the major reason for the deficit. The government's reserves will only last for another three months - if that, he says. But lifting subsidies on cooking gas is not the answer, he says. It is a very small savings on a commodity the poor of Egypt need while other subsidies - that benefit the well-off - are left untouched.

BASSIOUNY: The government is largely channeling the full effect of the subsidy removal, to the poorest segment of society. This is not only fiscally ineffective, but morally inconsistent.

FADEL: Meanwhile, the cost of food is soaring. For example, a chicken has gone from about $3 in 2012, to $6 this year. The price of rice is 28 percent higher. And the cost of bottled water has doubled. And because of the fuel shortages, there are repeated power outages in different parts of Cairo, and the situation is expected to get much worse during the blistering summer months.

Getting the IMF loan, Bassiouny says, would serve as an international endorsement, that it's still OK for foreign companies and governments to invest in Egypt.

At Hamdi Fawzy Hassan's bakery, he makes government-subsidized bread, and sells it for the equivalent of a penny a loaf.

HAMDI FAWZY HASSAN: (Foreign language spoken)

FADEL: If the government cancels the subsidies, he says, the poor won't have bread.

Across town, an Egyptian housewife picks through the vegetables at an open-air market.

HALA SADEK: (Foreign language spoken)

FADEL: Hala Sadek rarely buys produce anymore. She can't afford it. People here say if the government can't fix the situation, the next revolt will be led by the hungry.

Leila Fadel, NPR News, Cairo.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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