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Sudden energy subsidies cut will create lower-middle class outcry: Economist - Daily News Egypt

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Sudden energy subsidies cut will create lower-middle class outcry: Economist

Government increased petroleum product prices Saturday after cutting subsidies

The government did not give citizens prior notice of fuel and diesel price increases (DNE Photo by Amr Ghonema)
The government did not give citizens prior notice of fuel and diesel price increases
(DNE Photo by Amr Ghonema)

A large portion of the middle class have officially fallen into poverty after the government cut energy subsidies and raised petroleum prices, according to Alia Al-Mahdi, Economics Professor at Cairo University, especially given the lack of a “basic level of protection” for affected groups.

“The government did not give prior notice of price increases, even verbally, and they also failed to formulate preventive policies to protect citizens from the skyrocketing prices that hit the market,” she said.

The lowest wage rates will falter before the price hikes and citizens will not be protected, she added.

The government increased prices for all petroleum products Saturday morning after reducing energy subsidies. The move was made to reform the subsidy system and ensure delivery of petrol, diesel, and gas to homes and factories. The price of 80-octane petrol is now EGP 1.80 as opposed to the previous EGP 0.90, and 92-octane petrol increased from has gone up to EGP 2.65 from EGP 0.90.

Al-Mahdi emphasized that Egypt’s poor represents 25% of the population, with the rich making up 10%, and the middle class 45%. She added that there also exists a category just below the middle class that accounts for 20% of the population. Al-Mahdi also explained that the price increase has impoverished the members of this class while simultaneously dragging the middle class to just above the poverty line.

“Poverty rates officially increased on Saturday morning after the government raised petroleum product prices following recent price jumps for vegetables, fruits, transportation, and communications, alongside a decrease in purchasing power,” she said.

The government does not have tools at its disposal to protect citizens from price increases, she noted, partially due to the weakness of the public transport system as compared to private transport. Consumer complexes also fail to meet citizens’ needs in terms of quality, diversity, and price when compared to hypermarkets and malls.

Approximately 25 million Egyptians live under the poverty line and will not be able to bear potential price increases for all goods and services.

“The government is determined to implement policies that lead to poverty and disease,” said Dr Hania Al-Sholkamy, Socio-Economics Professor at the American University in Cairo, “They should have prepared citizens for price hikes before the move was taken, as this would not have happened.”

Al-Sholkamy asserted that the increase will clearly and rapidly affect public transportation rates and the microbus tariff, a phenomenon that became clear on Saturday.

“The government must quickly enact policies to protect the poor and provide an alternative for all citizens by increasing the efficiency of transportation services and improving basic goods for sale in consumer complexes,” Al-Sholkamy continued. “All citizens will pay the price from their incomes, which are crumbling in the face of price increases. Poverty rates are on the rise, especially among the middle classes.”

The majority of transportation prices jumped on Saturday after the government increased petroleum product rates by 30-40% alongside price surges for some vegetables, fruits, meats, and chicken.

“The government must improve business practices to facilitate the flow of new investments. This will allow for jobs to be created and wages increased, as any normal citizen with a fixed income will be harmed by the price hikes,” Al-Sholkamy said.

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