March 30, 2017 / 10:15 AM / 6 months ago

UPDATE 3-Egypt considering raising food subsidies - sources

* Some 70 million Egyptians receive subsidised food

* Subsidies may be increased to ease impact of reforms

* Minister sees inflation easing by Dec after big leap (Recasts, adds AfDB loan)

By Ehab Farouk

CAIRO, March 30 (Reuters) - Egypt’s government is considering raising food subsidies provided to millions of people every month by 29 percent to help ease the impact of rising prices on poorer families, two sources at the finance ministry said on Thursday.

Around 70 million of the country’s 92 million population are beneficiaries of a subsidy card programme that entitles them to 21 pounds ($1.16) worth of goods every month, in addition to five loaves of bread per person per day.

“We are considering increasing the level of support through the subsidy card in the 2017/18 budget to 27 pounds to alleviate the impact of the economic reform programme on low-income people,” a senior ministry official who declined to be named told Reuters.

Another source said the ministry was also considering an exceptional 10 percent increase in salaries for government employees to partly offset recent price rises.

A surge in inflation to a 30-year high since Egypt dropped the pound’s peg to the dollar in November has driven up living costs in the import-dependent country, with food and drinks prices rising over 40 percent in the year to February.

Details released on Wednesday after the draft budget was approved by the cabinet showed food subsidy spending was set at 62.585 billion pounds in the coming financial year, up from 49.544 billion expected for 2016-17.

Supply Minister Ali Moselhy had earlier this week put proposed food subsidy spending for next year even higher, at 86 billion pounds.

But he said on Thursday the budget did not include any increase in the monthly card subsidies. “Until now, there is no increase in the level of support via the cards,” he said.

Finance Minister Amr El-Garhy declined to comment on the issue: “All things are being considered ... I don’t want to go into them now,” he said.

BUDGET CHALLENGES

Garhy told a conference in Cairo the government was trying to stick to an economic reform plan which has unlocked billions of dollars in loans from the International Monetary Fund and other lenders, while at the same time protecting people from the worst impact of the price rises.

“The budget has presented great difficulties and challenges, between implementing the economic reforms on one hand and retaining the social protection plan on the other,” Garhy said.

The African Development Bank (AfDB) said it disbursed $500 million to Egypt on Thursday, the second of three expected tranches aimed at helping to revive the economy. The loan will support projects including social housing, youth employment and sanitation work.

The government’s proposed 2017-18 budget will increase expenditure in local currency terms by nearly 20 percent to 1.188 trillion Egyptian pounds ($65.35 billion).

It targets GDP growth of 4.6 percent, with an expected deficit of 9.1 percent, compared to 10.5-10.7 percent in the current year.

Garhy said he predicted inflation, which rose to its highest level in more than three decades last month, would start easing by November or December.

Deputy Finance Minister Ahmed Kouchouk told the same conference that he expected to see inflation fall to an average of 15.2 percent during the 2017-18 financial year. Annual urban consumer price inflation hit 30.2 percent last month. ($1 = 18.1800 Egyptian pounds) (Additional reporting by Nadine Awadalla; Writing by Dominic Evans; Editing by Gareth Jones)

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