While Egypt’s Social Safety Nets (SSN) system, broadly defined, commands a large share of the budget, its impact on poverty and human capital development is limited. The system has many weaknesses, including fragmentation and poor coordination; low coverage of the poor; weak links to promotion of human capital; and social and economic inefficiency. In recognition of these weaknesses which are mainly affecting the poor and most vulnerable, the Government of Egypt is undertaking several measures to consolidate and strengthen its SSN system. There is a general consensus within the government and its development partners that Egypt needs to move away from an inefficient and untargeted SSN system to a more efficient and targeted one. Currently, much of the spending on SSN goes to fuel subsidies, which mostly benefit the rich, and are ineffective in reducing poverty. Egypt’s non-subsidy SSN programs are fragmented and limited in scope.
Egypt’s SSN system comprises programs commonly observed in many other countries: cash transfers to alleviate poverty and build human capital; social care services in institutions, communities and for families; universal and targeted food and energy subsidies; and programs that aim to help individuals build skills, find jobs, and, in general, improve their earnings opportunities. These programs fall under the purview of several ministries and agencies: Ministry of Manpower and Migration (e.g., job intermediation), Ministry of Social Solidarity (e.g., cash transfer, social care for vulnerable groups); Social Fund for Development (e.g., training for unemployed, micro-credits); Ministry of Finance (e.g., fuel subsidies, social health insurance); Ministry of Supply and Internal Trade (e.g., food subsidies, food rations, liquefied petroleum gas (LPG)). Egypt’s subsidies, for energy and food, represent a large fiscal drain and are the largest element of Egypt’s SSN system. Fuel subsidies on average exceed 6 percent of Gross Domestic Product (GDP) and account for about 20 percent of budget expenditures, dwarfing other elements of social safety net: food subsidies (about 2 percent of GDP), ration card subsidies (0.5 percent of GDP), and cash transfers to the poor (0.1 percent of GDP). Egypt’s universal energy subsidies are highly regressive, benefiting mainly the rich. Recent household survey data show that nearly 60 percent of energy subsidies go to the top two income quintiles. In the case of urban households, the top two quintiles received three quarters of the total energy subsidies. Ninety-one percent of subsidies for gasoline used for cars went to the top income quintile and virtually none to the bottom one.