Subsidies are a major item in government expenditures in Egypt, accounting for 36 percent of total expenditures in 08/09. They aim at mitigating the cost of living on vulnerable groups, providing basic fuel and food products at prices that fall below the market price. However, persistent budget deficit (reaching 6.9 percent of GDP in 08/09) and limited capacity to mobilize additional resources to tackle other government spending priorities on education and health have brought to the fore a heated debate concerning subsidy reform in Egypt. Opponents have attacked the current system on two accounts: (i) the high fiscal cost and its implication on the budget and rising public debt, and (ii) failure to target vulnerable groups, wasting government resources in financing excessive consumption and profits. Advocates of maintaining the current subsidy system have emphasized concerns about the adverse effects of removing subsidies on inflation, growth and social equity besides the difficulty to target and administer cash transfers and/or rationing cards to the poor. The discussion engaged both sides in a lively debate.