Abstract

Despite improvements, Egypt is still a relatively low-income country,43 While income per capita is well above the average for sub-Saharan Africa and also South Asian economies. Egypt ranked the 51st poorest out of 133 countries on the basis of income per person (see Table 17). Compared with similar countries in the region, Egypt only comes above Pakistan. Income per person in U.S. dollars is half that of Jordan, and less than a third that of Turkey. However, in terms of income expressed in purchasing power parity, Egypt compares favorably with Jordan and Morocco.

Overview of Social Indicators

Despite improvements, Egypt is still a relatively low-income country,43 While income per capita is well above the average for sub-Saharan Africa and also South Asian economies. Egypt ranked the 51st poorest out of 133 countries on the basis of income per person (see Table 17). Compared with similar countries in the region, Egypt only comes above Pakistan. Income per person in U.S. dollars is half that of Jordan, and less than a third that of Turkey. However, in terms of income expressed in purchasing power parity, Egypt compares favorably with Jordan and Morocco.

Table 17.

Regional Human Development Indicators

(In percent, for 1995 unless otherwise specified)

article image
Sources: All series from World Bank, World Development Report (Washington, 1997), except unemployment, which are IMF staff estimates

Ranking from I (lowest) to 133 (highest).

Average 1990–95.

3Latest available data. For Egypt and Pakistan, lower estimate is official and, higher estimate is Central Intelligence Agency.

Percentage of population living on less than $1 a day (at purchasing power parity), 1981–95.

Share of income or consumption. Latest available data. Data for Egypt relate to 1995/96.

Data refer to 1993, except Egypt, 1995.

Per 1,000 live births.

Percent of children under five that are malnourished

Nearly 12 percent of Egypt’s population lives on less than $1 a day (expressed at purchasing power parity), markedly higher than regional comparators, where data are available. Using poverty lines based on a minimum standard diet, about 44 percent of the population does not spend enough to obtain the nutritional minimum.44 Certain groups are particularly disadvantaged. Women head about a third of urban low-income households and are twice as likely to be unemployed. Social indicators for women also lag behind those of similar regional countries; for example, female primary school enrollment is only 85 percent of the male enrollment rate.45 The highest rates of poverty are in the rural areas of upper and lower Egypt. The average rural Egyptian is a third poorer, twice as likely to be ultra poor and illiterate as the average urban inhabitant. The poorest households also have very old or very young members. The more children in a household, the poorer it is.

Egypt’s health and education indicators also remain weak. Adult illiteracy, at 49 percent, is very high, although lower than for Morocco and Pakistan.46 The quality of education remains low, with graduates lacking the essential training to acquire skills needed in the job market. Infant mortality is very high, only lower than that of Pakistan and almost twice that of Jordan and the Syrian Arab Republic. Life expectancy at 63 years is again only higher than Pakistan’s, which broadly reflects the poor health situation.

There is a close link between the high prevalence of absolute poverty and rates of unemployment: estimates of unemployment range from 10 percent to 22 percent of the labor force. While not as high as Algeria’s, Egypt’s unemployment rate is probably one of the highest in the region. While rapid labor force growth is part of the explanation, about 560,000 new jobs must be created annually to absorb new entrants and dent the unemployment rate-faster labor force growth rates in Pakistan, the Syrian Arab Republic, Jordan, Tunisia, and Israel have not led to unemployment rates higher than Egypt’s. Its adjustment program initiated in 1990/91, which centered on strong fiscal adjustment, especially subsidy reduction, has not appeared to have had any negative short-term impact on the poor. The incidence of poverty has remained remarkably stable between 1990/91 and 1995/96.47 Inequality appears to have fallen in four of the eight regions over the past five years, and overall, the poorest quintile’s share of total income has risen, narrowing the gap between rich and poor.

Social Safety Net Mechanisms

The main elements of Egypt’s social safety net are consumer subsidies (both for major food items and nonfood household items, such as electricity and water), cash transfers and social insurance programs, income supplement and microcredit programs, and voluntary organizations’ welfare and development programs. The Social Fund for Development was established in 1991 to cushion the impact of adjustment on the poor

Consumer Subsidies

Generalized food subsidies have traditionally been a major component of the social safety net.48 They proved to be very expensive and have been greatly pared down. Currently, only bread, wheat flour, edible oil, and sugar are subsidized. Bread and wheat flour mainly sold to private bakeries) are available without restriction; edible oil and sugar are distributed on a monthly quota basis to consumers through ration cards. Only the two most basic forms of bread, shami and balady. are subsidized.

Bread is the staple food, with average consumption of about two and a half loaves a person a day, making up about 37 percent of the total daily calorie consumption. The bread and wheat flour subsidy amounted to about 1 percent of GDP in 1996/97. While the subsidy is not explicitly targeted, because the food is consumed proportionately more by the poor who rely heavily on it, it is effectively self-targeted.

Piped water is heavily subsidized for domestic, especially low-volume, consumers. A lack of reliable and consolidated information makes it difficult to estimate the aggregate water subsidy. Electricity is used by the poor, but predominantly only for lighting, and small residential consumers are cross-subsidized by large commercial customers. Oil products, despite recent price increases, also remain subsidized. The main subsidies are for fuel oil, kerosene (heavily used by the poor), and gas oil.

Social Fund for Development

To cushion the impact of the economic reform program adopted in 1990, the SFD was established in 1991. It was intended to assist, in the short term, low-income groups most directly affected by the economic reform and to strengthen the government’s institutional capacity to design and monitor poverty alleviation policies.

For the First phase of the SFD, the specific target groups identified by a program of surveys were women and children: new graduates; unemployed youth; small entrepreneurs; and employees leaving public sector jobs. The core SFD programs are the following:

  • (1) The public works program attempts to improve basic services and infrastructure in rural and low-income areas by creating temporary employment by funding labor-intensive projects (typically roads, water, and irrigation-related projects).

  • (2) The community development program has two projects: productive activities project centering on employment-generating activities, and the micro and cottage industry level. The social development activities project aims at improving the delivery of basic community services (mainly health and education).

  • (3) The enterprise development project creates jobs by lending (via banks) to small and micro enterprises.

  • (4) The employment and retraining project funds programs that assist public sector workers whose firms are restructured.

  • (5) The institutional development project aims to improve the government’s ability to identify and monitor the impact of economic and social policy on living standards.

All the major components of the SFD’s work will continue in the second phase following the generally positive assessment of the first phase. Greater emphasis will be placed on targeting, sustainability, decentralization, and impact assessment. The small business program is to become an independent, permanent, body lending to a wider range of small businesses (estimated at 20,000–25,000 a year). The labor retraining program will also be expanded to include skills development and will be retitled human resource development. The public works project is being scaled back (by almost half) following donor and government opinion that this should be the responsibility of line ministries. The community development program has been doubled. More resources will be spent on working with local institutions and nongovernmental organizations (NGOs).

Beyond Stabilization. Toward a Dynamic Market Economy
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