Safety Nets and the Poor
65
dies do have a sizable impact on transportation costs and food prices and these items account for substantial shares in the expenditure patterns of the poor. Similar distributional results were found in a recent analysis of energy subsidies in Egypt (World Bank 2005b). Rich households benefit much more from these subsidies than do poor households: whereas the top quintile receives 34 percent of benefits from subsidies on four petroleum products (LPG, gasoline, kerosene, and natural gas), the poorest quintile of the population receives only 13 percent. As in other countries, the regressive pattern is not uniform across different products. Gasoline tends to be the most regressive, with 93 percent of benefits going to the richest quintile, whereas kerosene tends to be the least. Indeed, in Egypt the kerosene subsidy is progressive in that the poorest quintile benefits more than does the richest quintile (see figure 5.2). Given their size, the redesign of energy subsidies could release huge resources for spending on other parts of the social safety net. For example, a recent calculation for Egypt (World Bank 2005b) showed that if current non-kerosene energy subsidies were cut in half (to about 4.5 percent of GDP) and the saved revenues were distributed equally to the entire population of Egypt as a cash transfer, the incidence of poverty would be cut to 13.5 percent (from a level of around 20 percent). Some 4.2 million people would be lifted above the poverty line. It should go without saying that if targeted transfers were attempted, the reduction in poverty would be even more substantial.
FIGURE 5.2
Incidence of Petroleum Subsidies in the Arab Republic of Egypt, 2004
LE per capita per month
12 10 8 6 4 2 0 Q1 Kerosene Source: World Bank 2005b.
Q2 Natural gas
Q3 Gasoline
Q4 Liquefied petroleum gas
Q5