Egypt Makes Bread Subsidy Concession as It Tries to Avert Unrest

(Bloomberg) -- Egypt's government on Wednesday partly reversed an earlier move to lower bread subsidies, trying to avert further protests in a country reeling from rising prices.

The Supply Ministry said it would raise, but not fully restore, the amount of bread that can be bought under the so-called “gold card” scheme that's used by a small minority of Egyptians who don't hold a plastic smart card for purchasing cheap loaves. A day earlier, ministry chief Ali Al-Moselhi had defended cuts to the program as necessary to curb waste and corruption. Hundreds demonstrated outside bakeries in cities this week, fearing bigger cutbacks were planned.

“Enough time wasting,” Al-Moselhi said in Tuesday's televised press conference. “Was it possible to leave the situation like that?”

The paring of the bread subsidies that tens of millions of Egyptians rely on is potentially an explosive issue, particularly when the Nov. 3 abandonment of currency controls and the raising of fuel prices have sent the cost of living soaring. The pound has lost about half of its value since then and core inflation -- a gauge that strips out volatile items such as food -- is nearing 31 percent.

President Abdel-Fattah El-Sisi and the government are already under pressure to soften the impact of those reforms in this nation of 92 million, where half live around or below the poverty line. The measures were key to securing a $12 billion loan from the International Monetary Fund.

New Cards

Egypt has a history of deadly bread riots, with dozens killed in 1977 in an eruption of discontent with the reduction of food subsidies. The subsidies were later reinstated to restore quiet. The partial rollback announced Wednesday affected four of Egypt's governorates, and the ministry said it would issue 100,000 new smart cards in six others.

The government has been struggling to rally the economy since the 2011 ouster of longtime leader Hosni Mubarak. Bread and fuel subsidies that account for about 25 percent of the budget are a major burden on it. Further fuel price increases are expected, as are other reforms to the costly subsidy program that officials have repeatedly said is rife with abuse.

The plastic smart cards allow each family to buy five subsidized loaves per person each day. Al-Moselhi was quoted in the daily Al-Mal newspaper on Tuesday as saying that 290,000 people were affected nationwide but his initial cut.

--With assistance from Ahmed Feteha and Abdel Latif Wahba

To contact the reporter on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs