Interpreting Middle East Economic News and Analyzing Market Trends

Egypt & Jordan: Taking away subsidies is proving more challenging than expected

Governments in the Middle East, regardless whether they have oil wealth or not, are being forced to rethink the subsidies they give to their citizens either to shore up their finances or to move along a more sustainable path.  We’ve discussed issues with subsidies in previous posts, here, here, here and here.  

 

Government’s in the region put themselves in the predicament they are in decades ago as a way to keep their citizens happy and give them a sense that their governments are doing something for them.  However, decades later and millions of people later, these governments are facing a financial crisis and no longer have a choice but to reduce subsidies.  In doing so, they are putting their survivability at risk as is the case with Egypt and Jordan (see below).

 

A drug dealer knows that selling drugs to his clients is bad, but taking drugs away from them is even worse.  Taking away subsidies is the right thing to do, but it will and is creating civil unrest.  It is the right thing to do for a sustainable government, but at the same time, it immediately hurts the population, many of whom already pay a high percentage of their incomes on food a fuel.   Here’s the latest from Jordan:

And here’s the latest from Egypt:

Hundreds of cooking gas cylinders distributors cut off Cairo’s downtown street, Qasr Al-Aini, on Tuesday.

They stormed into the supply ministry, protesting the new prices for the cooking gas cylinders set by the government, reported the Middle East News Agency.

The supply minister agreed to meet with five representatives of the protesters to discuss the price increase which would affect profits of the distributors.

The government has raised prices of subsidized cooking gas by 60 percent, to eight Egyptian pounds per cylinder for domestic use, and doubled the price for ones used in businesses.

This move is part of the government’s plan to reduce energy subsidies, which is an important step to secure the $4.8 billion International Monetary Fund loan that Egypt needs to contain the budget deficit.

Egypt’s budget had been affected by two years of political unrest and economic turmoil since the ouster of former president Hosni Mubarak.

Read the full story from Albawaba Business.