Isobel Coleman

Democracy in Development

Coleman maps the intersections between political reform, economic growth, and U.S. policy in the developing world.

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Egypt and the Challenge of Subsidy Reform

by Isobel Coleman
March 21, 2013

Vehicles queue at a petrol station in Toukh, in El-Kalubia governorate, about 25 km (16 miles) northeast of Cairo March 12, 2013 (Amr Abdallah Dalsh/Courtesy Reuters). Vehicles queue at a petrol station in Toukh, in El-Kalubia governorate, about 25 km (16 miles) northeast of Cairo March 12, 2013 (Amr Abdallah Dalsh/Courtesy Reuters).

When I last wrote about the long-discussed (and much-needed) $4.8 billion IMF loan to Egypt in January, it looked as if the loan was right around the corner. Now, in all likelihood, Egypt will not receive the funds any time soon. Much of the hold up is IMF concern over whether Egypt has the political will, and capacity, to scale back its unsustainable subsidy program. Today on ForeignPolicy.com, I discuss Egypt’s subsidy reform challenges as well as some lessons from other countries that have headed down the path of reform. As I write:

In Egypt’s case, the government needs to launch a concerted public relations campaign that exposes the wastefulness and corruption in the current subsidy system, and that also explains the potential in reallocating funds to more productive investments and targeted assistance to the poor. Cleaner air and less clogged streets should also have some appeal for urban elites.

Second, governments must present a comprehensive reform program that matches concrete benefits with subsidy reductions. Iran, for example, deposited cash compensation into household bank accounts in the weeks leading up to its subsidy reductions. Although these deposits were frozen until the day of the price increases, people were reassured knowing the money was actually there.

You can read the full piece here.

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