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Egypt introduces minimum wage but faces spiralling cost of subsidies

The head of the World Bank’s anti-graft unit says every child in the world’s poorest countries should learn about corruption at school.

Leonard McCarthy told the Observer newspaper that as well as providing authorities with a practical manual to tackle corruption, the World Bank wanted the topic of corruption to be included in the school curriculum. “You need to find a way to work on the DNA, the psyche of people – you need to reach them at a very early age,” he said.

Mr McCarthy’s statements followed meetings with organisations involved in tracing the billions of dollars it is believed Hosni Mubarak and those close to the former President of Egypt siphoned off from their country’s economy. Any money which can be clawed back is especially needed right now. Before the popular uprising, Egypt’s economy was growing at around 5 per cent per year. But following the unrest, gross domestic product (GDP) has fallen, with the country seeing a decline in manufacturing and a collapse in tourism revenue. Egypt could be facing an 11 billion shortfall in its reserves during the second half of 2011.

The interim government will be averse to taking any radical reform steps at the present time, especially before elections later this year. However, the government has recently raised the top rate of income tax and introduced a minimum wage of 700 Egyptian pounds (around 118 dollars) per month. The government has also proposed a new housing programme to provide affordable homes for the poor and job-training grants. In addition, spending on areas such as education and health is set to increase by 20 per cent over the next year. With the current slump in the tourism and trade sectors, it is hoped these modest increases in spending will not adversely affect the economy. Egypt has also secured promises of funding from foreign governments and financial institutions to help with the current shortfall in government revenues.

However, according to the Economist, more radical change will be needed in the future. The government’s increase of public-sector wages and boost to certain pensions may not be affordable in the long term. The country also continues to spend a huge amount on fuel and food subsidies. With prices rising, food subsidies account for around 2 per cent of Egypt’s GDP and fuel takes up 8 per cent (together three times higher than the education budget). Fuel subsidies mainly help those wealthy enough to own cars or the tourism industry, which uses up a fifth of diesel subsidies in areas such as air-conditioning for luxury hotels. By contrast, subsidies on bread and food staples are of direct benefit to the poor. However, the food programme is beset by theft and leakages. One former minister said a security guard was needed for each sack of flour. If Egypt’s economy is to thrive in the future and all its citizens are to benefit from a fairer society, then perhaps it is time for school children to learn about corruption and bring a new thinking with them when they join the workforce.

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