Pricing and Subsidy

Egypt Table of Contents

Beginning in 1952 the government initiated a program of price controls that included both indirect taxation and subsidies. The aim was to reallocate resources to serve various goals ranging from industrialization to social welfare, but the effects were mixed. In agriculture, for example, the state set the price of agricultural inputs, such as fertilizers and pesticides, and crops, especially cotton and sugar. Some basic consumer commodities, especially food and energy, and services, such as education, were subsidized to make them available for the bulk of the population. In industry, public enterprises paid subsidized rates for energy but had to sell their products to consumers at fixed, low prices.

Price distortions and subsidies were magnified over time, resulting in the misallocation of resources and straining the government budget. For example, in 1987 the ratio of consumer price per kilowatt-hour of electricity to production and distribution costs was less than 0.25. This shortfall, coupled with rising consumption, contributed to a growing government deficit, which compelled the government to reconsider its pricing policy.

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Source: U.S. Library of Congress