Many have commented that the latest economic move to slash subsidies is a good thing. I can’t say I’m surprised because for over three years, the rhetoric was repeated incessantly by numerous economists and the IMF, that Egypt must cut subsidies for economic reform. The idea that cutting fuel subsidies is a good thing to start economic reform has become so ingrained that often times people do not stop and think why.
Subsidies are not good because the country ends up paying lots of money to help the rich as it tries to help the poor. They represent a form of unnecessary help given to the rich as well as the poor, which means the money is unable to distinguish between who it helps.
When you lift subsidies without redirecting resources to more focused help to those who need it, you create more problems than you solve. Subsidy cuts needed to be accompanied by an alternative social security net and that is not happening. They needed to be accompanied by a fair justice system, so that those abusing the system can be brought to justice and help can be delivered to those who need it most and that is not happening. They need to be accompanied by new taxation schemes and salary adjustments that actually benefit the poor.
Perhaps the most worrying aspect of lifting these subsidies is that there are no signs that this is a subsidy reform to help benefit the poor. There are many worrying indications that the money which the government saves will be channeled differently. Indication of the pattern of expenditure is that the army increased its budget over three billion pounds for 2013/2014. More so, energy intensive industries are still subsidized even though the subsidies have been lifted from the poor and at the same time these industries sell their products at international prices.
The myth that Egypt 'has no choice but to lift fuel subsidies' is incomplete because it ignores that lifting subsidies is part of economic reform and it causes more problems if there is no economic reform. Too many have just repeated blindly that lifting fuel subsidies is a necessary reform and the entire meaning of the economic reform has been lost because of such blind repetition.