Any attempt to undermine the social security net at present is nothing short of a crime

The House of Representatives is currently discussing the proposed articles of the social security bill, which regulates the cash subsidy schemes provided by the state, unites them under one umbrella, and links them to poverty as a basic determinant to obtain cash transfers. The House approved the bill in principle earlier this week.

The new draft law unifies access to the various cash subsidy systems under one umbrella, covering the beneficiaries of the cash transfer programs "Takaful" and "Karama". The new draft law is meant to replace the Social Security Law No. 137 of 2010.

EIPR believes the unification of the cash transfer systems at the financial and regulatory levels is necessary, provided that it expands the coverage rather thant reduce it, especially as the law links the cash transfers to the condition of falling below the poverty line. In light of the enormous pressures on citizens' living standards as a result of the local and global economic conditions, and the resulting creation of bigger numbers of poor people and reduction of the living standards of those already under the poverty line; it is imperative that the premise and application of any new law  becomes expansive.

The cash transfers currently provided by the Takaful and Karama programs, as well as the social security pension, cover about 5.2 million families, equivalent to about 22 million individuals, according to the financial statement of the state budget for the current year. These figures indicate that nearly half of the poor are still outside this system, as the number of people living under the poverty line in 2020 reached about 31 million, and that was before the waves of steep inflation that hit Egypt over the past two years. The poverty rate is expected to reach 40% of the population at present.

The government's calls to shift from in-kind to cash subsidies raise fears that the remaining subsidy system for goods provided on ration cards will be eliminated, ostensibly to achieve savings for the state. Therefore, the recognition by the new law of the continuation of in-kind subsidies for food commodities is a positive sign, since commodity subsidies are  a fundamental protection for food security and against slipping into poverty.

Before the House of Representatives resumes debate on the bill on 15 December, EIPR proposes amendments to some articles of the draft law, hoping that these amendments will empower the law to play a greater role in achieving social security.

• Poverty line and inflation: The law determines those eligible for subsidy based on the national poverty line, which is a positive development. The poverty line is meant to be updated every two years, but it has not actually been updated for four years. The last estimate of the poverty line was made in March 2020, setting it at 857 pounds per month, while estimates now place it around 1,780 pounds per month, given the inflationary waves that occurred over those four years.

Recommendation: There is a need to provide for an exceptional update of the figure during high inflation waves, such as those that occurred in the past five years, and which are expected to continue over the next two years. This is in line with the rate of exceptional changes in setting the minimum wage.

• Social insurance: The law requires that citizens must not be subscribed to the social insurance scheme in order to get the cash transfers. However, the problem is that many of those who subscribe in the social insurance scheme or work under contracts in the public or private sector are already below the poverty line; if the family's income is divided by the number of its members. This is also true considering that a large percentage of workers do not receive the official minimum wage.

Recommendation: The condition of social insurance subscription should be abolished, and the fact that the family income falls below the poverty line would suffice as an eligibility condition.

• The joint committee formed from the parliamentary committees of Social Solidarity, Planning and Budget, and Parliamentary Affairs removed the procedures of field verification related to the entitlement to subsidy from Article 3 of the government's proposal, and referred them to the executive regulations.

Recommendation: The procedures should remain in the law to ensure parliamentary oversight, with more detail added in the executive regulations.

• Review of fees and pension: Article 12 of the law set the rate of increase in the fees prescribed for applying for cash support on an annual basis, while increasing the support payments every three years, bearing in mind that the income and expenditure survey conducted by the Central Agency for Public Mobilization and Statistics (CAPMAS), which determines the poverty line, is issued every two years. Reviewing the value of monthly cash support every three years is unacceptable in light of the current food inflation rates in Egypt. Food prices would double at least twice every three years, and the cumulative inflation rate would increase by approximately 75% every three years based on current trends.

Recommendation: The article should stipulate that fees will increase every two or three years by no more than 10%, while the annual increase in Takaful and Karama transfers should be linked to the annual food inflation rate, as food is the only component of the abject poverty basket and the main component in the poor’s consumption.

• The allocation ceiling: The law setting priorities for disbursing the Takaful and Karama pensions is a good thing, but the government decided to set a ceiling in the law related to the available financial resources, without specifying how these resources are allocated in the general budget. The current text of Article 13 means that those who meet the eligibility conditions may not receive subsidy if the resources are insufficient, leaving eligible groups without any social protection, which contradicts the principles of social justice stipulated in the 2014 constitution.

Recommendation: Introducing an article to set the allocations annually based on estimates of the income of the households below the poverty line in Egypt. The article should also stipulate that the surpluses shall be carried over annually to the Takaful and Karama Fund to be used in increasing the pension or the number of beneficiaries. It is worth noting that the state’s spending this year on cash transfers does not exceed 6% of the total subsidy allocations, and 0.2% of GDP.

• Minimum and maximum pensions: Article 14 stipulates that the minimum and maximum pensions shall be determined by a decision from the Prime Minister based on proposals from the Minister of Solidarity and the Minister of Finance, but minimum pensions should actually be linked to the figures of the national poverty line. The proposed method will make the allocation of resources dependent on financial considerations of the ministries, and not on what is necessary to achieve social security for poor families. The article also provides for a review of the value of the payment every three years.

Recommendation: The periodicity of the update should be more flexible, and the annual review of the value of cash support should be linked to the food inflation rate, or to an inflation equation that calculates the total inflation in the basic needs included in the consumption basket of poor households  (food, drink, housing, etc). This could follow the model of the mechanism for updating the minimum wage utilised by the National Wages Council (NWC).

• Follow-up of the exit of beneficiaries from the system: Article 26 stipulates that the competent unit shall commit to field follow-up, by taking a random sample of not less than 30% of the cases benefiting from the cash support during the months of March, April and May of each year, based on the annual statement submitted by the beneficiary, to ensure that the eligibility conditions are met so as to continue disbursing the subsidy, amend it, or stop it appropriately. If the eligibility conditions are not met, or the financial or social status of the beneficiary has changed in a way that requires amending the value of subsidy, or stopping it, the aforementioned unit shall present the case to the competent cash support committee to issue a decision. This involves a significant administrative cost each year, as it stipulates a re-evaluation of 30% of households yearly, meaning a very large number of individuals. This will increase the total cost of the program, and will consequently reduce the amounts actually paid to families. The article also does not guarantee a clear mechanism or framework for stopping the program’s benefits. It employs very broad terms, such as “change in the financial or social status”. It is better to set a clear criterion, such as the household income exceeding the minimum wage or the average national poverty line.

Recommendation: Quantitative indicators and criteria and clear mechanisms should be set for the exit of beneficiaries from the system, such as the monthly income exceeding minimum wage, or exceeding the average national household poverty line according to the number of family members.

The social security bill opens the door to improving the life of millions if treated as an opportunity to absorb the brutal effects of "economic reform" programs on the living standards. It could also allow for improved social security in the face of successive waves of price hikes. However, it could completely backfire if treated as an additional means of reducing government expenditures and expanding austerity policies that aim to get rid of the growing "burden" of the poor.