Financial support to the poor: Does it really work?
Question marks around two government funds' ability to alleviate poverty with current austerity measures
 
 
 
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With the devaluation of the Egyptian pound, the government has vowed to expand its financial aid program for the poor through two funds established in 2015: the Solidarity Fund and the Dignity Fund. However, officials have equally implemented a number of austerity measures that have undercut basic social security, provoking doubt as to the ability of the promised expansion to alleviate the effects of poverty.

Mohamed Maayat, the deputy finance minister for treasury affairs, tells Mada Masr that the government plans to allocate an additional LE500 million to the two funds in accordance with Prime Minister Sherif Ismail’s instructions, which will bring the total amount of money provided through the program to LE6 billion. This sum is constituted by the LE4 billion earmarked to both funds in the 2016/2017 fiscal year budget, while an additional LE1.4 billion comes from the World Bank as part of a 2015 agreement that grants Egypt a US$400 million loan for the programs.

Alongside the increase in funding, the government plans to expand the number of beneficiaries covered by the two funds to 1.5 million families by the end of June 2017, according to a statement by the Finance Ministry. This would exceed the current budget’s projection that the fund would provide aid to 1 million families.

This accelerated timeline, however, comes up against both the reality of the program’s current coverage as much as the initial plans for its expansion.

When they were launched, the Dignity and Solidarity funds aimed to incrementally expand their coverage to 1.5 million families over three years, according to Shereen al-Shawaraby, the former president of the economic justice department at the Finance Ministry. A source in the Social Solidarity Ministry familiar with the funds’ administrations says, “the ministry’s data indicates that the total number of families benefiting from the two programs at the beginning of November was only 804,274.”

Whether the government is able to achieve its goal of increasing the number of families covered by the funds or not, its target would only cover a fraction of the total number of poor families in Egypt, which Heba al-Leithy, a professor of statistics at Cairo University and the supervisor of the Central Agency for Public Mobilization and Statistics (CAPMAS) research on income and expenditure, estimates is between 5 to 6 million families.

Even those currently covered are in a tenuous position, according to Leithy, who says that the aid provided by the Solidarity and Dignity funds capped “the increase in Egypt’s poverty rate at around 30 percent at the end of 2015, a level it would have exceeded if it wasn’t for the funds.”

However, the poverty rate has increased nonetheless, and Leithy says that current economic policies risk adding to the 27.8 percent of Egyptians who currently live below the poverty line. “The funds couldn’t stop the poverty rate from rising from 26.3 percent in 2013 to 27.8 percent in 2015. The new economic measures threaten to increase poverty to an unprecedented level. They will naturally affect the standard of living of 4 million families living on the poverty line, causing them to soon fall below it.”

The government lifted subsidies on petroleum products and liberalized the foreign currency exchange rate in November as part of an austerity program marshaled in concert with approval of a three-year US$12 billion International Monetary Fund loan.

Yet an increase in the value of the Solidarity and Dignity funds’ holdings adjusted for inflation is not up for discussion.

The Dignity Fund provides aid to the elderly and the disabled, availing LE325 every month to a family that includes one person who fits the program’s criteria. The sum becomes LE425 if there are two eligible individuals and LE550 if there are three members in one family.

The Solidarity Fund, meanwhile, targets families with students at schools, allocating LE60 every month for students in elementary school, LE80 for students in middle school and LE100 for those in high school.

In the budget for the current fiscal year, the government has estimated that the rate of inflation will increase to 11.5 percent from the 10.6-percent figure that CAPMAS reported in the past fiscal year.

“Protection funds are different from wage and retirement funds. They are not to be expected to increase in a cyclical session based on inflation or other reasons,” says Maayat.

Hania Sholkamy, an anthropologist at the American University in Cairo’s social research center that designed the Solidarity and Dignity funds, defends the necessity of adjusting the value allocated to the funds, especially as they were designed before the economic situation deteriorated and the government implemented austerity measures. “To maintain [the fund] in its current status is evidence of poor government awareness,” she says.

Meanwhile, Leithy calls monetary payments “the worst kind of subsidy,” as they are susceptible to inflation.

“You can’t look at financial aid of this kind except as a painkiller to some of the symptoms of poverty. There is no alternative in this framework to expand spending on health and education,” Leithy says.

While critical of the their current functionality, Sholkamy defended the funds. “We should not look at the Solidarity and Dignity funds as remedies for the symptoms of poverty or as compensation for the removal of subsidies on goods. The goal of the programs is to treat the problems with the social security pension program, which is incapable of covering a large number of poor families because of the difficulty of its eligibility criteria.”

Maayat says that the move toward financial aid and the removal of subsidies on commodities will be gradual. But he assures that support for necessary commodities will not stop altogether.

The government has claimed that the two funds were designed to resolve problems with in-kind subsidies, which have been marred by corruption and have become inaccessible to those for whom they were intended.

However, Sholkamy says that the programs have come to take on too much of a burden in their expanded role. “The social aspect of the government’s [aid] programs in general does not exceed the Solidarity and Dignity funds,” she says.

“The Solidarity and Dignity funds are supposed to represent a small portion within a wider system of social protection that generally reduces poverty as manifested in the lack of education and healthcare,” Sholkamy says. “These are supposed to be tackled through other types of subsidies that are not necessarily financial, such as free transportation for students, or whatever the equivalent financial subsidy is in rural areas, which are not included in the public transportation network or subsidized school meals.”

The current state budget ignored the constitutional provisions for allocations on education, scientific research and health spending. The Egyptian Initiative for Personal Rights (EIPR) estimated that the government would need to earmark an additional LE61-96 billion to adhere these provisions.

Sholkamy believes that the IMF should exert pressure on the Egyptian government to develop a social protection program as part of the conditions of the loan package.

She had proposed the creation of a third program to complement the Dignity and Solidarity funds: the Opportunity program, which would be a form of unemployment assistance. “The suggested program aimed to grant financial support for a period of six months every five years, enabling the beneficiary to prepare for the workforce and to pursue vocational training. However, the proposal was rejected.”

“The government recently decided to adopt a new program with the same name. But it had a different nature and was based on microloans, a premise with which I totally disagree, because the market cannot absorb all these loans. It would repeat the experience of the Social Development Fund, which loaned youth money to implement projects to distribute gas cylinders and caused them to increase in price.”

The unemployment rate in Egypt has decreased slightly in the second quarter of 2016 compared to the first, falling from 12.7 to 12.5 percent, according to CAPMAS.

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Beesan Kassab