Mon 15 Sep 2008 - CAIRO (Reuters)
Egypt must pursue structural reforms despite a need to protect its poorest citizens from high food prices via government subsidies, the head of the International Monetary Fund (IMF) said on Monday.
Soaring food prices triggered violent protests in some areas of Egypt earlier this year, prompting the government to raise public sector salaries by 30 percent and then nudge up fuel prices to finance the wage increase.
Urban inflation soared to a fresh 16-year high of 23.6 percent in the year to August, led by food and fuel price rises.
"The IMF is not arguing that ... subsidies should disappear, because part of the population may need it to smooth the effect of rising prices," IMF Managing Director Dominique Strauss-Kahn told a news conference in Cairo.
"The government is right to concentrate subsidies on those who need it most," he added.
But he said the IMF forecast global food prices would follow fuel prices lower in the coming months and told Cairo to continue its efforts to liberalise the economy.
Egypt "should not, because of inflation, abandon or postpone all that has been on track in structural reforms," he said. "It is of utmost importance for Egypt to go on with the reform that has begun."
"There is a lot of work to do to make a cleanup of the subsidy part of the budget, and I am convinced the government will do it," he said.
Food subsidies for the poor, especially of bread, are an essential component of Egypt's economic policy, allowing millions of town dwellers to survive on low salaries.
Egypt, facing public anger over rising prices of basic commodities, has left the price of subsidised bread unchanged even as it reduced fuel subsidies in May to finance pay rises for public sector employees.