Sisi's Subsidy Squeeze in Egypt Welcomed Abroad But Comes With a High Domestic Cost

The streets of Cairo once again froze this week as angry Egyptians blocked streets in protest over the government's raft of price hikes.

Cigarettes, beer and spirits immediately became more expensive after the government introduced a new sales tax, but it was the price hikes on fuel that provoked immediate dissent on the streets of the capital and prompted the market to raise prices on goods across the economy.

Taxi drivers blocked thoroughfares throughout the city, parking their vehicles in defiance and disbelief at the prices being charged at Cairo's petrol stations.

Recently elected president Abdel Fattah al-Sisi had said that his administration would tackle costly energy subsidies and had also used his electoral campaign to promise he would prioritise the most vulnerable in Egyptian society.

The breakdown of the surprise price hikes has provoked dismay among lower income groups that use cheaper fuels, like taxi drivers.

There are five types of fuel commonly used in Egypt. Unleaded is the costliest type of fuel, generally used in the newest and flashiest cars. Its price was raised 7% but the gasoline used by buses and minibuses went up a staggering 78%.

"I have five kids, God only knows how I can pay my rent this month," Cairo bus driver Salame told Reuters. "I was wrong when I voted for Sisi. We are the poor of this country and the decision makers are putting a sword's blade to our throats."

In a sign that the administration was fully aware of the anger its policy would likely stir up, the new prices were announced only a few hours before they were due to be implemented.

Playing to an International Audience

While successive administrations have promised to reform Egypt's public finances, it seems that Sisi is actually willing to push through unpopular reforms, drawing unflattering comparisons with former president Anwar Sadat.

In 1977, fresh from a perceived victory in the conflict with Israel, Sadat significantly hiked prices on fuel, bread and a range of consumer items. Egyptians responded with a wave of violence, setting fire to presidential residences across the country that became known as the notorious "bread riots." Sadat's domestic popularity never recovered and he was assassinated four years later.

The recent price hikes show where Sisi's priorities lie. Egypt's foreign exchange reserves have dwindled to $16.68bn (£9.74bn), similar to the depths it reached in the wake of last summer's coup.

Sisi has an eye on international creditors and hopes to secure backing from the International Monetary Fund. He knows the Fund would only approve loans to Cairo if the government embarked on austerity measures. Moreover he is seeking more cash from his allies in the Persian Gulf, namely Saudi Arabia, Kuwait and the United Arab Emirates.

While the trio of Gulf states were happy to lavish cash on the man who brought about the downfall of an Islamist president in the Arab world's most populous nation, both the Emiratis and the Saudis are keen that their aid money is put towards long-term investments and not lost in waste and corruption.

Economists hailed this week's slash in subsidies, while ratings agency Fitch said the cuts are a key way to reduce the country's budget deficit and are positive for Cairo's credit profile.

On the back of a massive victory in May's presidential election, the former head of the armed forces is confident that he has enough political capital to ride out any popular discontent.

While the relatively small number of protests to date may validate his calculation, recent history shows that Egyptians want to be listened to by their leaders. If the economic reforms become intolerable, Egyptians will no doubt make their voices heard on the streets.