In 2016, the current president of Egypt Abdel-Fattah el-Sisi (2014-today) received IMF support through the granting of a loan to the Egypt with a total value of $12 billion. In return, the Egyptian government should take fiscal austerity measures and implement impressive reforms to modernise the country’s economy by looking to a better future.
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The main budgetary measures were the abolition of fuel subsidies, the devaluation of the currency to make the country’s exports competitive in relation to its imports and the imposition of VAT of 14%. In 2015, the government budget deficit reached a level of 11.2% of GDP, while after three years of reform today the deficit in the state budget has been reduced to 8.2% of GDP.
However, in these three years of reform, the cost of living has drastically increased, and since, due to the abolition of fuel subsidies, the cost of transportation and travel and generally the cost of services and products, products as petroleum derivatives, has Increased by fueling the increase in inflation, which in 2019 moves to a single digit (see the following chart).
In addition, the state has increased the cost of all licenses, tuition fees in schools, taxi fares, tax on those travelling with airplanes, tax on profits of companies to finance the new national health-care system.
The costs of both services and consumer products have increased. At the same time the minimum monthly salary remains for years stuck at 1200EGP translated to $73 (06/09/2019, spot usdegp closed price 16.42) which cannot help most of the population to escape poverty.
On the other hand, the government of Egypt has arbitrarily designated as the lowest poverty line the 736EGP per month translated to $44.8 per month. This limit is too low, trying the government in this way to limit the size of the poverty and the size of the population belonging to the poorest class.
The growth of Egypt is moving in the rates of 5.7% (Jul 2019) annually presenting the highest growth rate from all other countries in the Middle East.
But this growth seems to be not based on the domestic work and productivity of the Egyptians, as the resources fueling the growth come from the annual tax levies from the Suez Canal, the oil sales of the Sinai and from remittances from the wages of Egyptian workers who are immigrants in the Persian Gulf.
The drastic increase in prices over the last three years (2016-2019) is because the Egyptian state abolished subsidies to commodities to be able to repay its debts to the IMF.
The result of this policy was to abolish the net of social protection in Egypt. The main money transfer schemes, the Takaful and Karama, which are the main cash-transfer schemes for the poor and cover around 10m people, under operate and their benefits do not cover the basic nutritional needs of the poorest families of Egypt.
The reasons for the inadequacy of the economy
But before we move on to presenting the solutions-policies that the Egyptian government will have to implement to reduce the high poverty rates to the Egyptian people, we should consider the reasons for the inadequacy of the Egyptian economy that are mainly the gigantic size of the state and the way that the public sector works always at the expense of the private sector.
1. The public sector, which is gigantic and plethoric instead of acting as a cog in the smooth operation of the private sector, competes with the private sector.
2. The public sector lacks unbiassed objectives. It is teeming with military people who have been recruited for their dedication to the government and regardless of whether they are capable or not.
3. The management/administration of state-owned enterprises takes place for the benefit of the personal interests of their commander and the government that appoints them and not for the interests of the enterprise.
4. The most powerful trade unions do not allow the businesses to properly managed.
5. Egypt’s bourgeoisie avoids investment while trying at every opportunity not to pay taxes.
6. The constant growth of the population. Now the population of Egypt is close to 99 million. Residents, whose largest proportion are concentrated in cities near the banks of the Nile River.
This overpopulation has the consequence of the deficit between what the country produces and what it consumes to be constantly expanding. Egypt is therefore forced to import at least half the amount of cereals it consumes every year. Agricultural production is not at satisfactory level in order to monitor the demand of populations in cities.
Policies to escape Egypt from poverty
Egypt will be able to escape poverty and impoverishment when it succeeds with its own forces to sustain the largest percentage of its population. This will be achieved by implementing a new rural reform.
1. A new rural order of free owners-growers and entrepreneurs of rural land should be created.
2. The Egyptian state should:
a) To divide the public land into families-farmers by awarding them the full ownership of this land.
b) Each rural family will be attributed with full title deeds of 1 hectare (10 acres) of arable land.
c) The government will provide low-interest rate loans to farmers in order to buy those seeds that they want to cultivate as well as the machines they need. The repayment of these loans will have a grace period of three years and after the first three years will be repaid in the 20-year depth so as not to burden the incomes of farmers.
No public service and no civil servant will have the right or authority to instruct farmers what they should cultivate on their land. The choice will be exclusive to the farmer himself.
d) The government on its side and regardless of land product should guarantee a high market price of the farmer’s crop. The surplus harvest will be driven into exports.
e) The government should borrow funds for the construction of irrigation projects and to convert a large part of the desert into arable land.
The implementation of such a policy will restore a large part of the population of cities in rural areas of the country. The farmer will determine when and how to water his fields.
In turn, farmers will join growers-landowners’ associations. Each association will elect its own board of directors and its president. They will then hire a director with a salary only from the private sector, who will manage the issues of irrigation, trade and a service for the credits of the members of the union who hired him.
None of these directors of the agricultural associations will be a civil servant, former military, former politician or former public sector worker.
In this case, the agricultural production will soar and at such a level that will guarantee the supply of the country and will create on a stable and continuous basis surplus for exports.
After these first achievements will be followed by the industrialization of the country. In this way Egypt will be able to feed its population, drastically reducing the import of cereals and giving the opportunity to a large majority of its citizens to escape from poverty once and for all. The funds that will be saved from cereal imports will redirected in other productive sectors of the economy.