Files
Abstract
Despite achieving a significant cost reduction over the past two decades, the
absolute cost of food subsidies in Egypt is still high relative to the benefits received by
the poor. There is scope for better targeting food subsidies, in particular those for rationed
cooking oil and sugar, both because reforms in this area are perceived to be far less
politically sensitive than adjusting subsidy policies for bread and wheat flour and because
higher income groups presently receive a significant percentage of the benefits. Targeting
the high-subsidy green ration cards to the poor and the low-subsidy red ration cards to the
nonpoor will require identification of both poor and nonpoor households. An
International Food Policy Research Institute (IFPRI) research team in Egypt, in
collaboration with the Egyptian Ministry of Trade and Supply, developed a proxy means
test for targeting ration cards. This paper describes the process of moving from the
optimal income-predicting model to the final model that was both administratively and
politically feasible. An ex-ante evaluation of the levels of accuracy of the proxy means
testing model indicates that the model performs quite well in predicting the needy and
nonneedy households. An effective and full implementation of this targeting method
would increase the equity in the ration card food subsidy system and, at the same time,
lower the total budgetary costs of rationed food subsidies. Moreover, the experience
gained under this reform would facilitate targeting future social interventions to reduce
and prevent poverty in Egypt.