Author Archives: Barbara Gallets

Subsidy Systems in MENA Nations Need Reform

Buying bread with subsidy cards at a bakery in Cairo. via REUTERS/Mohamed Abd El Ghany

The subsidy systems in some Middle East and North African (MENA) nations need an overhaul. In countries such as Lebanon and Egypt, poorly structured subsidies exacerbate extant problems caused by high fiscal deficits, growing populations, and unmet citizen expectations. At least, that was the key message I took away from the CIPE webinar I attended on September 26. Because subsidies affect the economic capacity of millions of low-income families, CIPE hosted a webinar focusing on electricity subsidies in Lebanon and bread subsidies in Egypt to generate dialogue on the topic. My blog aims to highlight the main points from the webinar, which was facilitated by Patrick Mardini of the Lebanese Institute for Market Studies (LIMS) and Reem Abdelhaliem of the Faculty of Economics and Political Science at Cairo University.

Governments implement subsidies as a means to pacify discontented populations. The hope is that if the sticker price of essential commodities—such as bread, rice, oil, and electricity—is kept artificially low, citizens will have less of an incentive to protest poor economic conditions. While this may ease discontent in the short term, the subsidy systems in place often do more harm than good. By keeping prices low, the government bears consistent losses and passes those on to its citizens by elevating taxes and providing lower quality services. Furthermore, widespread corruption within the subsidy system exacerbates economic disparity and prevents the subsidies from benefiting its intended beneficiaries: the poor. Mardini and Abdelhaliem both discussed this during the webinar, using Lebanon and Egypt as prime examples.

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Private Sector Plays Crucial Role in Improving Public Services in Arab Nations

Electricity workers repair cables in Sidon, Lebanon (via The Daily Star/Mohammed Zaatari)

When governments have exclusive control over the provision of goods and services, citizens are trapped without an alternative. Because the state monopolizes the entire market, there is no competition to ensure fair prices, sufficient quality, and satisfactory customer service. Taxpayer money is poured into government services, ostensibly to improve their quality, yet private citizens rarely see improvements. For example, many homes and businesses in Lebanon lose power for hours on a daily basis. Public servants are similarly inefficient, making basic bureaucratic procedures a nightmare.

The Lebanese Institute for Market Studies (LIMS), an independent economic think tank in Beirut, advocates for the implementation of free-market economic policies in Lebanon. LIMS’ current work focuses on the government’s inability to reliably provide electricity throughout the country. With CIPE’s support, LIMS launched a campaign to create awareness of the need to repeal the electricity subsidy, stop government investment in the sector, and open the sector to private competition. As a result of LIMS’ advocacy efforts, the Lebanese government announced in February that it would repeal the electricity subsidy this year. The government also announced in June that it decided not to lease Turkish power-generating ships after Lebanese officials discovered bidding process irregularities. These decisions represent progress towards LIMS’ reform objectives.

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