Why Egypt’s budget problem isn’t subsidies

Are subsidies the root cause of Egypt’s economic crises? Would cutting or eliminating them materially reduce the country’s debt or budget deficit? And would their abolition advance social justice?

These questions recur whenever the government announces a new economic “reform” package aimed at narrowing the budget deficit through subsidy reductions. The burden of these measures, however, is borne disproportionately by low-income households, with predictable effects: rising food insecurity and a further narrowing of already limited pathways out of poverty.

Yet a glance back to the 2010–2011 fiscal year, on the eve of the January revolution, complicates this narrative. The mass mobilizations for bread and social justice unfolded at a moment when subsidies were, by most measures, more expansive than they are today.

It is true that total subsidy spending rose from 123.1 billion pounds (about $2.6 billion at the current exchange rate) in 2010–2011 to 742.5 billion pounds (about $15.6 billion) in the 2025–2026 budget. 

Measured against the overall size of the budget, however, a different picture emerges. As a share of total budget expenditures—covering the state’s routine operations, wages, procurement, and investment—subsidies declined from 30.6% to 16.2% over the same period. Once debt service and other financial obligations are taken into account, their share fell more sharply, from 28% to 11%.

Fuel subsidies have been subject to substantial reductions, with direct and foreseeable effects on fuel prices. In the current fiscal year alone, the nominal value of fuel subsidies fell from 154.5 billion pounds (about $3.2 billion) to 75 billion pounds (about $1.6 billion). Correspondingly, their share of total subsidy allocations declined from 24.3% to 10.1% in the latest budget.

Food subsidies reflect a comparable trajectory. Their share dropped from 35% in 2019–2020 to 21.5% in 2025–2026. Over the same period, the monthly food subsidy per person on ration cards has remained fixed at 50 pounds (about $1.1) since 2018, notwithstanding the exceptional inflation recorded in recent years.

Even as these core subsidy lines have been steadily reduced, additional items have been incorporated into the subsidy bill that do not translate into direct benefits for citizens, yet inflate the headline figure in ways that can be misleading. Chief among these is what the budget labels “contributions to pension funds,” reflecting part of a 50 years installment plan through which the Finance Ministry has committed to compensating state pension funds for contributions withheld over decades.

These transfers from the Finance Ministry to the social insurance funds are, in substance, a form of debt service rather than social expenditure. Nonetheless, they accounted for approximately 21% of total subsidy allocations in the 2025–2026 budget.

Taken together, the subsidy profile points to a pattern of gradual erosion. In real terms—once the extraordinary inflation of recent years is accounted for—subsidy support has continued to contract from one year to the next.

The IMF’s prescription did not cure the deficit

Egypt began applying International Monetary Fund recommendations in the 1970s. Improving public finances has been one of the IMF’s headline prescriptions for five decades. In the name of reducing the budget deficit, loaves of bread shrank in size, and pressure on Egyptians’ living standards intensified. After all these IMF‑inspired measures, are the state’s finances in better shape?

In reality, the budget deficit remains high and has become a chronic condition of Egypt’s public finances. The deficit in the current budget is expected to reach about 7.3% of GDP, above the global average of around 5%, according to IMF estimates.

These elevated deficit levels persist despite the unmistakable austerity reflected in a contracting subsidy bill. This persistence underscores a central point often obscured in public debate: subsidies have neither been the sole nor the primary source of fiscal pressure, notwithstanding their frequent portrayal as such.

In Egypt’s case, the more pressing constraint lies in public debt. The rapidly rising cost of debt servicing—both principal repayments and interest—has absorbed the gains of fiscal consolidation achieved through measures that have come at a tangible cost to living standards and social well-being.

The 2025–2026 budget illustrates this imbalance starkly. Debt service alone, comprising installments and interest payments, accounts for 64.8% of total budget uses, leaving little more than 35% for all other expenditures. Yet despite this arithmetic, subsidy allocations continue to be framed by some as a central burden on the economy, diverting attention from the structural weight of debt.

Escaping the debt trap will not come through more austerity, but by fixing the real economy. That means directing investment toward productive, development‑oriented sectors, such as agriculture and industry, whose combined share of Egypt’s GDP is stuck at around 14%, according to World Bank estimates.

Egypt requires a renewed strategy for industrial and agricultural development—one capable of expanding exports, improving the balance of payments, and easing pressure on the exchange rate. This also entails moving away from the recurrent practice of treating subsidies as a convenient proxy for deeper failures in economic policy.

Such a shift would, in turn, require two parallel commitments: curbing new borrowing except for clearly defined development projects, and creating conditions conducive to both domestic and foreign investment. Only under these conditions can Egypt begin to emerge from the current crisis and generate the fiscal space needed to support robust social protection policies, including subsidies.

The challenge, then, is not to fault subsidies for policy choices made elsewhere, but to confront directly the structural drivers of the crisis.