EGYPT—The Egyptian cabinet has decided to increase the price of a subsidized loaf of bread (baladi bread) to four times its previous rate.
This is the first government reform in more than 30 years in a context where the accessibility of baladi bread is a major issue for social stability in the country.
The announcement was made on May 29 by Prime Minister Mostafa Madbouly. Madbouly said that the price of a loaf, long set at five piastres (US$0.001), will quadruple to 20 piastres (US$0.004) from June 1.
He acknowledged the move would be unpopular but emphasized the need to “rationalize the burden on the state treasury to ensure the sustainability of subsidies.”
The bread subsidy program costs the Egyptian government nearly US$3 billion each year or approximately 60% of total expenditure on food subsidies.
This follows that the government has been providing the 90-gram loaf of subsidized bread—locally known as baladi bread—to 72 million citizens enrolled in the ration card system for five piasters instead of the actual cost of 90 piasters.
Notably, Egypt produces a staggering 250 to 275 million loaves of bread daily through the existing subsidized bread system.
According to data from the Ministry of Supply, the real cost of producing a loaf of bread has risen to 1.25 pounds (US$0.026) from 1.15 pounds (US$0.024) a year earlier.
This has put too much pressure on the treasury, given that, recently, the government revised its bread subsidy policy, allowing the selling of discounted bread to citizens not enrolled in its ration card program through designated prepaid cards
The government aimed to ease the burden of rising food prices, which last year saw over 70 percent inflation among Egyptians, many of whom live at or below the poverty line.
The country, however, has been suffering its worst economic crisis for two years, with the currency losing two-thirds of its value and inflation soaring to a record 40 percent last year.
In addition, the government had attempted to bring down bread prices by increasing its flour supplies after receiving an injection of cash from several international financing deals, but the efforts hit roadblocks as free-market bakeries argued that reducing flour prices was not enough.
According to bakeries, the impact of rising rent rates and recent hikes in gas prices on bakery operations presented a complex web of economic pressures for their businesses.
Earlier this year, Cairo received a bailout of over US$50 billion in loans and investment deals from the International Monetary Fund, the World Bank, and the United Arab Emirates.
These deals included promises of reforms, such as limiting the state’s role in the economy and enacting policies to rein in inflation.
According to Madbouly, President Abdel Fattah Al Sisi has long argued that the pegged bread price was unsustainable for state coffers, hence the decision.
Madbouly also mentioned that the government was considering moving towards a “cash subsidy” model. Last year’s budget allocated 529 billion pounds (US$11.2 billion) to subsidies, about a sixth of the total budget, while debt servicing accounted for over a third of the budget, or 1.12 trillion pounds.
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