Egypt’s social safety nets must be expanded to address the severity of economic shocks induced by IMF-led economic policies.
Enhancing social protections has been a key goal in each of the joint economic reform programmes put forward by the Egyptian government and the International Monetary Fund (IMF) since 2016. Several initiatives have been launched in recent years to address this pressing need, most notably the Takaful and Karama cash transfer programmes and the Haya Karima infrastructure and human development initiative. However, the existing social safety nets have failed to adequately compensate for the economic shocks faced by Egyptian households during the reforms, resulting primarily from several sharp devaluations of the Egyptian pound (EGP), energy subsidy reductions and ensuing inflation.
32.5 per cent of Egypt’s population lived below the national poverty line in the 2017-18 fiscal year (FY), up from 27.8 per cent the year before the economic reform programme was launched.i This translates to more than 32 million Egyptians living in poverty. Although the latest available data, for 2019-20, shows poverty levels have fallen to 29.7 per cent, this number has almost certainly increased since then as the Egyptian pound has lost more than 50 per cent of its value compared to the US dollar since March 2022, while social protection measures have failed to keep pace with price increases.
Headline inflation hit 31.93 per cent year-on-year in February 2023.ii These levels are the highest Egypt has seen since 2017 when inflation peaked at nearly 33% (year-on-year)—prompted by the November 2016 devaluation—which saw an additional 4.7% of Egyptians (or around 4.7 million people) fall below the national poverty line. iii Inflation can be expected to increase in the coming months if the Egyptian authorities follow through on their pledge to maintain a ‘durably flexible’ exchange rate, which would bring further devaluations.
In the context of these price shocks, the existing social safety nets reveal several limitations. First, most of the central social protection programmes fail to cover millions of Egyptians living in poverty, as well as the tens of millions more who are vulnerable to poverty. Second, nominal increases in spending on social safety net initiatives have not kept pace with inflation and, as a result, have translated to decreased assistance in real terms at a time when the vulnerable are most in need. Finally, inadequate government spending on essential public services, most notably health and education, shifts substantial financial burdens onto households, while also contributing to multidimensional poverty.
Egypt’s economic crisis is becoming increasingly acute at a time when government spending on the social sector has been steadily declining. Expenditures for the combined social sector—which includes health, education, housing, public utilities and social protection—decreased from 54 per cent to 34 per cent of total government spending between 2009 to 2020.iv Even with the advent of the 2016 IMF-backed economic reforms – which called for enhanced social protections in the face of economic shocks – social spending (including health, education and social protection) decreased to just 5.1 per cent of GDP by 2019, down from 7 per cent in 2014.v
In light of this long-standing trend, major increases in social spending are necessary in order to counter the detrimental effects of the economic reforms on human development. This is particularly pressing for poor and vulnerable citizens, but also for the downwardly mobile middle class.
The severity of economic shocks induced by IMF-led economic policies necessitates a broad expansion of the social safety net programmes to increase coverage and quality of assistance. While recent government initiatives have begun to address these needs, they are insufficient. Egypt’s pledge to the IMF to further expand social protections as part of the latest loan package relies on its ability to successfully ‘mobilize revenues’ – an endeavor that is becoming increasingly difficult with a growing share of the budget earmarked to service debt. If the IMF is serious about demanding adequate coverage, the Fund must make it a precondition for receiving future loan disbursements.
The extent to which the poor and vulnerable have been forced to bear the brunt of Egypt’s current economic crisis could have been avoided. Following the 2016 reforms, the government enjoyed a substantial increase in revenue from the introduction of the 14 per cent VAT, while also saving billions of dollars by removing energy subsidies. But only a minor fraction of this money went toward providing social protections, in no way sufficient to deal with the economic shocks caused by the Egyptian pound losing half of its value overnight, and the removal of energy subsidies—both of which reverberated through the economy to produce soaring inflation.
Instead, the nature of the regime’s public spending reveals a clear prioritization for infrastructure and megaprojects over human development. While President Sisi has acknowledged the government’s inadequate spending on health and education, he has framed the issue as one of insufficient funds. At the same time, he has made tens of billions of dollars available for the simultaneous construction of dozens of new cities and projects of questionable value.
Moving forward, public spending must be reprioritized to focus on human development, including a genuine commitment to minimum spending on Egypt’s social safety nets, health and education, that also keeps pace with inflation. Measures must also be taken to stop the military from capturing the billions of dollars allocated annually to social protection programmes.
To mitigate the current crisis, the government should increase the amount allocated to food rations to keep pace with inflation, particularly for Egypt’s lowest quintiles; expand coverage of the cash transfer programmes and raise the value of assistance; improve transparency for the Haya Karima and social housing programmes – detailing how funds are spent, how projects are chosen, and how tenders are allocated to the construction companies involved – and improve the nutritional quality of the school feeding programme, while allocating contracts via competitive tendering, rather than allowing the military to monopolize it.
Alongside striving for greater inclusion in and assistance from the social safety nets, authorities must also prioritize public spending on health and education. Because the Egyptian government lacks the institutional capacity to identify all the country’s poor and vulnerable, it will take years to adequately expand coverage of the social registry to ensure assistance reaches everyone in need. Increasing government spending on health and education will reduce financial burdens on struggling households, while enhancing the human capital of future generations.
Without addressing the issues of broader public spending and the military’s takeover of social protection, Egypt’s social safety net initiatives will act as little more than a fig leaf to mask the devastating consequences of the IMF-led reforms for Egypt’s poor and vulnerable, while facilitating the expansion of the military’s political and economic control.
[i] Egypt’s fiscal year runs from July 1-June 30. CAPMAS 2021, p. 94.
[ii] Central Bank of Egypt 2023b.
[iii] CAPMAS 2021, pg. 94.
[iv] World Bank 2022a, p. 9.
[v] Othman et al 2021, p. 10.