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Backlash against petroleum subsidy cuts as experts cite concern of effects on middle class - Daily News Egypt

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Backlash against petroleum subsidy cuts as experts cite concern of effects on middle class

Cash support for poor may act as safety net, but biggest danger lies in creating new poor by cutting energy subsidies, says professor of socioeconomics Hania Al-Shalkamy

Egypt is on a difficult path and everyone will bear the sacrifice, said Minister of Finance Hany Kadry Dimian during an explanation of the general budget for the 2014/2015 fiscal year on Monday.

“No economic measure is taken without an accompanying social measure that decreases its severity on citizens,” a government statement on the budget said. “No social measure can be taken without previously locating a funding source, and support from an additional economic measure.”

Hania Al-Shalkamy, professor of socio-economics at the American University in Cairo (AUC), believes that the government’s response to calls to cut petroleum subsidies and to provide cash support for the poor is deceptive.

“[Petroleum] subsidies were cut to EGP 100bn in the new budget which will inevitably lead to the impoverishment of the middle class, and they represent a large proportion of Egyptians. Poverty in Egypt will increase,” said Al-Shalkamy.

The poor consume the least gas, gasoline, diesel fuel, and even food, so the actual impact on them will be small, she added.

“Providing cash support within the system of social protection for pensions and social security as well as adjusting the health and education systems are protective measures that must happen in order to decrease poverty, and the government must be forced to take them,” she argued.

The finance minister meanwhile said: “Measures will be taken to cut energy subsidies in the new budget by EGP 41bn making petroleum product subsidies EGP 100bn,” adding that the government plans to remove energy subsidies completely over 3-5 years.

Al-Shalkamy said the government must consider the effects of these decisions on the middle class.

“The government must review wage, employment, and investment policies in order to create a business practices environment that generates work opportunities and allows citizens to improve their incomes, adapt to inflation, and absorb the consequences of restructuring subsidies,” she said.

For Al-Shalkamy, alternative energy is essential and Egypt must invest in training, “as citizens unable to live on their income must be helped by the government through training or cash support.” She added that the government must also stop policies that intensify poverty, disease, and ignorance.

Walied Hilal, chairman of the Chemical Export Council, feared that calls for petroleum subsidy cuts along with diesel fuel rate increases will hike up the prices of basic goods.

“Without government intervention, prices will skyrocket,” he said.

“The government must use savings to cut subsidies, reform the education system, strengthen social safety nets for health insurance and pensions, and provide cash support to the poorest families. This will lessen the wrath of the street if prices jump due to diesel and gasoline price changes,” Hilal added.

Hilal feels that it is most important for the government to establish an information infrastructure that classifies and monitors the social classes that will be harmed by the subsidy cuts and price increases. The move must be made quickly to lessen the severity of the impact, he said, and it must be carried out in accordance with policies not limited just to the poor, but to all classes that may suffer from the subsidy reforms.

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