Immediately after Egyptian President Abdel Fattah el-Sisi announced the overhaul of the country's subsidies system, starting with fuel, the streets of Cairo witnessed protests the likes of which were not seen for months. These were not Muslim Brotherhood marches or demonstrations by experienced leftist activists, but ordinary Egyptians who were angered by economic policies at odds with the better life that June 30 had promised last year.
And yet the protests have been small. While criticism of Sisi is now visible in the media and in the streets in ways unimaginable just months ago, socioeconomic unrest remains limited. People are grumbling but are not threatening to bring down the government. The episode says much about the Egyptian government’s ability to pursue controversial economic policies without risking mass unrest.
On July 3, an incremental increase in the price of different categories of fuel used in Egypt was set in motion. While the price of octane-95 unleaded gas, generally used by newer and more luxury-end vehicles, increased by seven percent, octane-80 (used by public and private buses and microbuses) went up by 78 percent. Natural gas, the main fuel for taxis across Egypt, rose 175 percent. The increase has had a knock-on effect on basic transactions from taxi meters to food prices. The cost of additional consumer goods, particularly foodstuffs, is expected to increase by 200 percent in lieu of the fuel subsidy cuts, according to a statement by Egypt’s Consumer Protection Agency.
Sisi has defended the measures on grounds that without them Egypt’s domestic debt would have increased to LE 3 trillion ($419 billion) from its current LE 1.7 trillion. Egyptians agree that subsidy reform is needed, but plenty of disagreement remains on its exact terms—including whether it's a case of now or never, or whether a more measured approach, which takes into account wages and cost of living for poorer citizens, should come first.
So far, Egypt's government has not introduced accompanying welfare systems or protections for the poor. If anything, the new hikes and more recent subsidy cuts will affect lower-income Egyptians most. In January, for instance, Hazem Beblawi's transitional cabinet raised water prices by LE 1 ($0.14) each month, amounting to around 50 percent after 12 months. Water consumption will now cost LE 35 ($4.90)—rather than LE 24 ($3.40)—per 20 cubic meters of usage. The decision was not announced to the public, but was more recently leaked to Shorouk newspaper by a government official .
Despite the recent cuts, Egypt's 2014-2015 fiscal budget, which came into effect on July 1, shows spending on subsidies and social benefits rising by one percent compared to last year’s spending, forming 31 percent of the budget—although still below the LE 253 billion called for in a draft budget later rejected by Sisi. A new LE 1200 public sector minimum-wage law, which applies to state employees, takes effect in January 2015 and will cost more than the savings earned from the subsidy cuts that have raised prices on basic and consumer goods for all Egyptians.
While debt is the stated reason Sisi and Prime Minister Ibrahim Mehleb have given for the cuts, both have promised that the money saved each year on subsidies will be redistributed to fund social programs, including education and healthcare. However, given the severity of Egypt's debt crisis and the new minimum-wage law, it is unlikely that the government will be able to deliver on radical social welfare programs. A new report by the Egyptian Initiative for Personal Rights echoed these concerns, saying that the extra money saved in theory will not translate into increased funding for health and education. Meanwhile, the government’s proposed allocations are lower than the constitutional requirements for health (three percent) and education (six percent).
To a large degree, Sisi’s ability to enact major subsidy cuts with little unrest demonstrates how the government has, with some success, reclaimed leftist language to frame its reforms, remarketing austerity policies as inclusive, beneficial, and progressive. It seems Sisi learned a lesson from President Anwar Sadat's attempt at a more radical overhaul of the subsidies system in 1977. Back then, the reforms sparked the infamous "Bread Riots" and brought Egyptians to a stand-off with the army. The government has been lauded for its comparatively measured introduction of subsidy reform in 2014. However, this reflects more a wariness of Sadat's sudden, shock-therapy economics than any genuinely progressive reforms made by Sisi that might both complement subsidy reforms and protect the poor at the same time.
Some have interpreted Sisi's subsidy cuts as an indication that Egypt may again seek IMF loans in the near future. Talks are scheduled to restart later this month, possibly picking up where they left off—the $4.8 billion loan from the IMF to the Egyptian government, which was being negotiated under former president Mohamed Morsi but fell through, partly on account of the Morsi government's fears of cutting subsidies at a time of significant opposition and socioeconomic unrest.
Yet unlike previous bouts of opposition to proposed subsidy cuts, the threat from protests to Egypt's domestic stability has remained small. After three years of upheaval, Egyptians are tired and seeking economic security, not revolution. Sisi's greatest challenge will entail making sure economic reforms are not seen as soft on the rich at the expense of the poor. That has been a mainstay of Egyptian politics since the time of Gamal Abdel Nasser. But if the government continues to introduce policies seen as burdening the bottom two-thirds of society (around 60 percent of the population is regarded as "low-income"), public dissatisfaction will mount, and the sacred bond between Sisi and the Egyptian people, cast on the night of July 3, may very well unravel.
Tom Rollins is a freelance journalist based in Cairo.
