Austerity measures a major cause of poverty increase, statistics agency advisor says
 
 
Heba al-Laithy
 

The results of a biannual government report on household finances published at the end of July show that Egypt’s poverty rate increased 4.7% to 32.5% of the population over 2017 and 2018, up from 27.8% in the previous 2015/2016 study. According to the report, officially titled the Household Income, Expenditure, and Consumption Survey, the poverty rate reflects the percentage of people unable to meet basic needs including food, shelter, clothes, education, health and transportation. The government set the poverty line at LE735.6 ($45) a month per individual. 

The long-delayed report notes that the poverty rate doubled during the period between 1999/2000 and 2017/2018 reports, increasing continuously without any drops. Yet the most recent 4.7% increase in the poverty rate is the largest since 2000.

Mada Masr spoke with Heba al-Laithy, a statistician at the Cairo University and advisor for the Central Agency for Public Mobilization and Statistics (CAPMAS), which wrote and published the report. 

According to Laithy, the rise in the national poverty rate is a result of several austerity measures that “liberalized the exchange rate, reduced energy subsidies and introduced a value-added tax.” These measures were part of the economic program to which the government committed itself as part of its agreement with the International Monetary Fund (IMF). 

Over the period covered in the report, the government continued to implement the cuts to fuel and electricity subsidies originally announced in 2014/2015, hiking energy prices on several occasions, most recently in July. “It is important here to note that the subsidy policies had a clear effect on the extreme poverty rate,” Laithy says. The extreme poverty rate rose to 6.2% of the population in 2017/2018, up from 5.3% in from 2015. The extreme poverty rate represents those who can’t even cover their food consumption, which has a threshold set by the government at LE490.8 ($30) a month per person, according to the most recent survey.

“It is often said that energy subsidies are a waste or that the rich benefit the most from it. This is untrue. The poor do not have cars but they bear the burden of soaring mass transit costs and other indirect impacts of the rise in energy prices, especially on food. The same applies to the electricity subsidy, even the subsidy is divided into usage brackets. The impact of higher electricity prices on commercial entities spills over to market prices and affects the poor severely,” Laithy notes. 

In parallel, the government also sought to curb the rise in government wages through the civil service law, passed in 2015 — another measure that paved the way for the completion of the IMF deal.

Laithy says that the consequences of the overall austerity measures include a cumulative increase of around 60% in the inflation rate between 2015 and 2018. At the same time, “there is no indication in the survey that any of the sample strata were able to raise their income during the same period, with few exceptions,” she says.

“This gap between inflation and income led to a 9.7% fall in the average real consumption in terms of constant prices for each household,” Laithy says. “The purpose of comparing the increase in real consumption in terms of current prices with the fall of consumption in terms of constant prices is to clarify the scale of the price increase for each household,” she adds.

The CAPMAS survey defines the annual real consumption for each household as “the sum of consumer spending for each household, in addition to the value of the goods and services that the household acquired or used through in-kind transfers and subsidies.”

Laithy argues that the austerity measures imposed since 2014/2015 could have had less detrimental effects on poverty rates had there been greater compensatory measures. 

“What happened is that the savings from subsidy cuts were not used in spending on health and education for example. It is important here to note that the measures meant to alleviate poverty shouldn’t only include raising income and lowering prices, but also making available high-quality basic public services at low prices or for free so people do not need to look for, and spend money on alternatives, This also frees up people’s resources so they can be allocated to different consumption patterns.”

Compensatory policies, which are meant to balance out fiscal changes in general, were limited to cash subsidies from Takaful and Karama, financial aid programs introduced by the government in March 2015. According to Laithy: “It is not enough and only covers a small percentage of the poor. The real problem is that the larger portion of the fiscal savings from subsidy cuts was used to lower the budget deficit while at least 50% should have been allocated to compensate the people.” Takaful and Karama cash subsidies were directed to people who cannot work, specifically the elderly and persons with disabilities. 

While poverty levels hit record highs, inequality did not worsen, as shown in the measure of the parity in spending levels in Egypt, according to the survey. 

The Gini Coefficient, a reflection of the equity in the distribution of aggregate consumption spending for the whole population, fell nationwide from 0.3 in 2015 to 0.29 in 2017/2018. The closer the coefficient comes to zero, the more equal the distribution in expenditure and consumption, the closer it is to one, the higher the disparity.

Stagnation of the Gini Coefficient at this level was caused by a general downfall of real consumption that impacted most of the income brackets sampled in the study, Laithy argues. Notably, inequality in Egypt seems to be worse in urban areas than in rural ones. On average, Egypt’s urban areas scored a 0.32 on the Gini Index, while rural areas scored a 0.25. “This is basically because wealthier people tend to move from the countryside to the city, generally lowering the disparity in the rural areas,” according to Laithy.

However, Laithy added that the Gini Coefficient’s “ability to measure inequality between the two extremes of the brackets is limited.” Measuring inequality by focusing on the share of the top 1 percent of earners is better than focusing on the top-earning 10 percent, according to the IMF’s quarterly Finance and Development Magazine. The CAPMAS income and expenditure survey, however, focuses on the top 10% of earners in its categorization of socioeconomic brackets.

Another takeaway from the report is that unemployment did not increase in parallel with the poverty rate. On the contrary, the period between 2015 and 2018 saw a fall in the unemployment rate from 12.8% to 9.9%. 

“But the drop in the unemployment rate in itself does not lead to improved living standards or a reduction in poverty,” according to Laithy, who believes that what matters is the quality of work and working conditions. “For example, those who work for one hour a week are not counted as unemployed according to the definition of unemployment. But what income can be made from this type of work? The real issue is the work that is insufficient or unsuitable that generates wages below what a person deserves and does not match their qualifications, and comes in small, intermittent periods. This is the work pattern that is more familiar in informal work and in the private sector, according to the income and expenditure survey,” she says.

The research showed that the percentage of the poor in the informal labor sector increased 2017/2018 increased to 43.1% from 42% in 2015/2016. Informal labor is defined by those working without contracts with their employers.

Poverty rates in the formal private sector also increased from 23.6% in the previous report to 28.5% in the 2017/2018 report.

A closer look at the unemployment data shows that, while unemployment continued to decrease from 13.2% in 2013 to 9.9% in 2018, the overall employment rate simultaneously fell from 44.5% to 39% over the same period.

The unemployment rate calculates the number of unemployed adults above 15 years old who are capable of, and actively searching for work as a percentage of the total labor force. Employment rate represents the number of people who work at least one hour per week as a percentage of the population who are 15 years and older. Thus, the data actually indicates that fewer people in general are working, not simply that fewer people are unable to find jobs. 

Meanwhile, during the period between September 2016 and March 2019, participation in the labor force decreased steadily from 46.4% to 41.6% of the total population, according to CAPMAS. The labor force is the portion of the population who are able to work and want to work, whether they are employed or unemployed. Laithy argues that “one’s exit from the labor force or giving up on looking for work could be driven by various factors, the most common of which is despair from not finding work.”

The delay in the publishing of the study’s results also stirred some controversy. According to Laithy, “President Sisi saw the results of the research in February and accepted them as a natural consequence of the reform program.” However, the publishing of the survey results in late July may have been because “powerful sovereign agencies or others from the president’s administration feared the consequences of the research results,” Laithy says. “I was also told that the release of the report would be postponed until after the constitutional amendments,” she adds. The amendments were passed in April through a public referendum and will allow Sisi to stay in office until 2030 and give powers to the military establishment. 

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Beesan Kassab