Let me start by saying that what Im about to share is not politically motivated but merely expressing my views regarding the economic reality of Egypt and in particular the recent decision by the government to abolish subsidies for fuel related products. In general, Govt subsidy can not be treated as a bottomless bucket without generating some real national benefits, particularly in developing countries like Egypt. Not only economists but ordinary people living inside or abroad would describe the Egyptian economy at best as uncertain and serious and at worst perilous and something drastic is required to turn it around over the short to medium term Fuel subsidy represents one third of government spending and annually, Egypt is spending more than 15% of its GDP. Another words a budget deficit or simply spending money that we dont have, this would create catastrophic, compounding disaster for the future generations to deal with. For oil importing countries such as Egypt this subsidy encourages fuel consumption, resulting on reliance to increased fuel imports and in reality, the benefits of this subsidy is much less than the costs. The old 80/20 rule applies here where 80% of the subsidy benefits only 20% of the people. Someone could bluntly say that the Government is paying for top earners and more affluent people to drive and enjoy their daily living. So, we ask ourselves what are the potential benefits of such a bold initiative. It could lead to less cars on the roads, improving the current unbearable traffic congestions in many cities, particularly Cairo. It could also encourage people to buy more efficient vehicles which could lead to improved air quality and less pollution. Additional Govt revenue could be invested in other needed areas such as health care, education, welfare, etc. Oil smuggling out of Egypt by profiteering fat cats will not only stop but it will reduce a possible shortage of domestic supply. Of course, the big winner would be reducing national debt levels. Finally, I see this move as step one and part of a much wider, broader economic recovery program that could protect vulnerable citizens and SMEs as well as penalises and incentivises businesses for proper behaviour. A price freeze of all products and services for at least two years should be introduced to control the inevitable price/wage spiral cycle
Posted on: Sun, 06 Jul 2014 11:05:42 +0000
Trending Topics
Recently Viewed Topics
© 2015