EIPR issues new study on economic growth and poverty in Egypt, 2001–2013: From accelerated growth accompanied by increasing poverty to sluggish growth with effects borne by the poor
*A development policy that does not prioritize combating poverty will fail in the long- run
*GDP growth is not an indication of declining poverty rates
Coinciding with the World Bank’s consultative process and its review of country partnership strategies with the Egyptian government, the Egyptian Initiative for Personal Rights has issued a study titled, “Revisiting the Growth-Poverty Nexus in Egypt, with Reference to the World Bank Country Partnership Strategies.”
“The study aims to reexamine the relationship between growth and poverty from a perspective that differs from that of International Financial Institutions (IFI’s), which was the reference point for policymaking in Egypt in the period covered by the study from 2001 to 2013,” said Reem Abdel Haliem, an economic researcher at EIPR’s Economic and Social Justice Unit. “It looks at the actual outcomes of economic growth and poverty and analyzes the impact that growth had on poverty in Egypt.”
In its evaluation of development policies, particularly anti-poverty policies, the study finds that any development policy that does not make fighting poverty a priority is doomed to fail in the long term. Fair growth is such a growth that promotes the economic and social rights set forth in international conventions and treaties.
The study finds that IFI’s proceed from a blinkered view of poverty that considers it –partially- a result of insufficient growth, without paying due attention to the distribution of growth. According to this traditional analysis of the causes of poverty, the gains of growth will ultimately trickle down to the poor, even at different rates compared to the rest of the population; ultimately –according to the views of IFI’s- this will reduce absolute poverty rates, though it may lead to social disparities in the short and medium term. This view holds that any negative effects on poverty in the short term can be addressed by creating social safety nets for the neediest segments of society.
The study demonstrates that this model of development, adopted by both the government and international donors, has produced a crisis in Egypt. From 2001 to 2013, a period that saw high rates of economic growth—social inequality and poverty rates both increased. The percentage of the population living under the national poverty line was persistently rising from 16.7 percent in 1999/2000 to 21.6 percent in 2008/09, during and directly after the time of the economically prosperous years when growth reached nearly 8 percent.
The study’s quantitative analysis shows how it was possible for growth to increase simultaneously with poverty rates during the period that witnessed an increase in GDP. The study also examines the dramatic anticipated results if this model of development continues to be dominant in the current period, when the country is facing a sharp decline in growth.
The report shows that the violation of labor rights, represented in inequitable labor relations, leads to the accumulation of profits combined with an unfair distribution of the returns on production. This short-sighted view ignores that fair wages can be an incentive to activate the economic, as well as various participatory labor models followed in several countries that have achieved growth and fair distribution.
The study argues that a state fiscal policy targeting high growth rates coupled with disregard for the fair distribution of the fruits of growth, as well as disregard for social justice and the right of the poor to health, education and an effective social security system, are the reason that growth has not translated into actual improvement in the standard of living of the poor.
“Both the government and international donor institutions treated poverty as a natural outcome of attempts to accelerate economic growth through incentives. They offered very limited solutions for poverty, focusing only on improving targeting for social programs without any consideration of justice in the distribution of growth,” Abdel Haleim said. “All the government’s strategies and plans, including the program to stimulate growth, focused on incentivizing growth without strengthening channels that ensure this growth is equitable.”
The study recommends adopting fair development measures aimed at actually eliminating poverty. These measures should focus on preserving workers’ rights, social protection policies, the minimum wage and the right to organize in independent unions, while acting to limit market distortions and enhancing transparency, especially in budget preparation and planning, oversight and implementation.
The study emphasizes that tax evasion should be a focus and that tax exemptions should be reconsidered as an important element of state budget on revenues side. In terms of expenditure, the study recommends that the state approaches the subsidy system with caution. Subsidies should continue—and even increase—to preserve the living standard of limited-income groups, while subsidies for capital- and energy-intensive industries should be restructured.
Ashraf Hussein, the director of EIPR’s Economic and Social Justice Unit, said, “In the coming period, the unit is interested in continuing and strengthening dialogue and discussion with representatives of civil society in Egypt and the people’s representatives who will be elected to the next parliament, as well as international donor institutions, the Egyptian government and trade unions, to ensure that government economic policies comply with basic economic and social rights set forth in international conventions.”
The study is available here