Egypt faces a new bread crisis

Spreading through the streets, an unprecedented uprising in 2011 led Egyptians to overthrow dictator Hosni Moubarak, with chants ringing out for "bread, freedom and social justice". However, 10 years later while freedom and social justice remain a possibility for Egypt, bread may be harder to come by. The country's growing population and the weakening of the Nile are threatening water supplies, weakening its ability to irrigate crops and increasing the desert country's dependence on food imports from a global market where commodities are increasingly volatile.

The country that was once the breadbasket of the Roman Empire now has to import food and subsidies to feed its population. The world's largest wheat buyer is seeking to curb spending and reduce budget deficits at a time of accelerating global inflation. The North African country is dodging the crisis thanks to IMF support, but poverty is growing within a system with many imbalances. Outdated, inefficient and heavily reliant on the public sector, Egypt's economy was in serious trouble before citizens took to the streets after the 2011 revolution.

Until the 2011 revolution, the so-called 'bread riots' had been practically the only attempts at rebellion that had worried the various Egyptian governments, which never dared to reform Egypt's archaic system of subsidies for fear of a popular uprising. The government, strangled by the country's difficult economic situation, claims that subsidies are abused, and that some of the flour that bakers buy at a lower price ends up on the black market or is used to make bread for general consumption or other products. Bread prices have not changed since the 80s of the last century, for which the different governments have had to make more and more contributions, increasing the subsidies - which also include products such as cooking oil, gas and petrol - to unsustainable levels.

One of the characteristic words of the slogans chanted during the Tahrir Square uprising in the Arab Spring was "bread". Bread is now sold at 0.05 Egyptian pounds ($0.0032) per loaf to more than 60 million Egyptians, who are allotted five loaves a day under a vast subsidy programme that also includes products such as pasta and rice, and costs billions of dollars. Last year, the country reduced the size of its subsidised loaf of bread by 20 grams, allowing bakers to make more loaves at a fixed price from the standard 100kg bag of flour. In its 2021/22 budget, Egypt allocated 87.8 billion Egyptian pounds ($5.6 billion) to subsidise supply commodities and support farmers. Of this amount, 44.8 billion pounds is earmarked for subsidising bread. But for the neediest families in Egypt, where a quarter of the population lives below the poverty line and bread and humble foods such as beans are the staple of the diet, the new system could prove devastating.

In 2019, the IMF granted Cairo a $12bn loan in exchange for a programme to turn around its economy, which has been weighed down by instability caused by the regime's opposition to a democratic transition. Egypt has eliminated serious macroeconomic imbalances and stabilised its financial situation. The country regained economic growth, tripled its foreign exchange reserves, corrected its balance of payments, lowered unemployment, brought inflation under control, achieved fiscal surpluses and improved its credit rating, and unified exchange rates. 

In March 2020, Egypt suffered a shocking capital flight, its foreign exchange reserves fell by 20 per cent in three months, and some of its main sources of dollars, such as remittances, tourism and natural gas, threatened to suffer a severe setback. Moreover, Egypt lacks a strong industrial sector and relies heavily on imports of essential commodities, so growth means deepening its trade deficit and adding pressure on its dollar reserves.

Egypt is one of the few countries in the world that was able to achieve positive GDP growth in the midst of the pandemic. The country achieved 3.8 per cent in 2020, although not in an inclusive manner. The timid economic opening of recent years and the stimulus measures put in place to alleviate the effects of the crisis and COVID have been insufficient to reduce poverty, unemployment and inequality, three of the factors that fuelled citizen discontent in the Arab Spring.