Egypt orders major subsidy cuts in latest austerity move

The government said it intends to phase out electricity subsidies completely by the end of the 2021-22 fiscal year.
Sunday 17/06/2018
A worker waits for clients at a petrol station in Cairo. (AP)
Doubling prices. A worker waits for clients at a petrol station in Cairo. (AP)

CAIRO - Egypt increased the price of petrol as much as 50%, the Oil Ministry announced, part of an economic reform plan that has seen the government slash state subsidies. Egyptian Oil Minister Tarek el-Molla said subsidy cuts, which include cooking oil, would save the country $2.8 billion from the 2018-19 budget’s subsidy allocation.

The ministry said the price for 95 octane petrol had been increased to $0.43 a litre from $0.37; 92 octane fuel was increased to $0.38 a litre from $0.28 and 80 octane was raised to $0.31 pounds a litre from $0.20.

“Moving fuel prices will help reduce petroleum products consumption about 5%,” Molla said.

The ministry raised the price of cooking gas more than 60%, a move expected to hit poorer Egyptian households particularly hard.

The changes came just days after Egypt announced cuts to electricity subsidies, raising prices an average of 26% beginning in July, also part of an International Monetary Fund (IMF) reform plan. Egyptian Electricity Minister Mohamed Shaker said electricity costs would rise, on average, 42% for factories and 21% for households.

The government said it intends to phase out electricity subsidies completely by the end of the 2021-22 fiscal year.

Egypt’s commitment to enforcing deep subsidy cuts and other tough fiscal measures comes as part of a 3-year, $12 billion IMF loan programme that began in 2016. Egypt received the third tranche of the loan, $2 billion, in December, bringing total disbursements under the programme to $8 billion. The fourth tranche, another $2 billion, is expected to be received following the conclusion of a programme’s review this month.

The IMF has praised Egypt’s economic reforms, which included a currency flotation in 2016 that halved the value of the Egyptian pound and resulted in a major rise in the price of commodities, including basic foodstuffs.

“Egypt has begun to reap the benefits of its ambitious and politically difficult economic reform programme. While the process has required sacrifices in the short-term, the reforms were critical to lay the foundation for strong and sustained growth that will improve living standards for all Egyptians,” an IMF statement in May said.

“Egypt’s growth has continued to accelerate during 2017-18, rising to 5.2% in the first half of the year from 4.2% in 2016-17. The current account deficit has also declined sharply, reflecting the recovery in tourism and strong growth in remittances, while improved investor confidence has continued to support portfolio inflows. In addition, gross international reserves rose to $44 billion by the end of April, equal to seven months of imports,” the statement added.

Egyptian families have been hit hard by the austerity measures, especially the currency devaluation, but the moves are considered vital to improving the country’s economy.

“It will be challenging for middle income and lower income groups,” Radwa el-Swaify, head of research at Pharos Holding, said in May. “However, the government has implemented different social packages… trying to alleviate some of the negative effect on the lower income groups.”

Egypt’s parliament recently approved a social spending package raising the salaries and pensions of approximately 14.5 million Egyptian civil servants. There have been new tax exemptions that are expected to benefit lower- and middle-class Egyptians.

With popular protests against IMF-mandated austerity measures forcing the collapse of the government in Jordan, Egypt was careful to include social spending along with its austerity measures.

The Egyptian Finance Ministry said approximately 5 million government employees will benefit from new bonuses, 9.5 million will benefit from pensions and 20 million are to benefit from new tax credits.