The Role of Cash Transfers in Smoothing the Income Shock of COVID-19 in the Arab Republic of Egypt

Abstract

The COVID-19 pandemic impacted the Arab Republic of Egypt’s economy and its people in many ways. By combining micro-simulations and imputation techniques, this paper models early impacts of the pandemic on household income and the role of cash transfers from the Government of Egypt in supporting households and workers. As expected, and consistent with other evidence, the estimates show that the pandemic shock decreased labor incomes and increased income poverty in Egypt. It was estimated that in fiscal year 2020, average household income per capita contracted by about 1.7 percent, and income poverty was about 2.2 percentage points higher, compared to a non-COVID-19 scenario for the same year, using the international poverty line of $3.65 a day (2017 purchasing power parity). Labor income losses were widespread across the country, disproportionately affecting informal workers. The results also suggest that expanded social protection cash transfers and targeted cash assistance to Egypt’s informal and tourism sectors played a substantial role in smoothing the initial labor income shock. In the absence of compensatory cash transfers, income poverty would have been 1.1 percentage points higher. The compensatory measures, in particular the cash transfer programs Takaful and Karama, preferentially protected rural households due to the programs’ targeting rules. Thus, households in urban areas were significantly more likely to become income poor, compared to those in rural settings.