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Egypt is hiking gasoline prices by up to 50 percent, as it is seeking to meet reform requirements for funds extended by the International Monetary Fund (IMF), but the gradual removal of the fuel subsidies makes ordinary Egyptians angry with austerity measures.
Egypt is raising the prices for most of the gasoline varieties by up to 50 percent, and this is the third fuel price increase since November 2016, when Egypt floated the local pound currency.
Back in November 2016, the IMF’s Executive Board approved a three-year extended arrangement under the Extended Fund Facility (EFF) for Egypt for around US$12 billion in order to support the authorities’ economic reform program. Fuel price increases were part of that agreement.
The most recent gasoline price increase would help Egypt to save up to US$2.8 billion (50 billion Egyptian pounds) that it would have otherwise allocated to state subsidies for fuel under the 2018/2019 budget, according to Egypt’s Petroleum Minister Tarek El Molla.
Last week, Egypt also cut some of the electricity subsidies by raising electricity prices by an average of 26 percent beginning on July 1.
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Many ordinary Egyptians are not happy with the government’s austerity measures and say that they spend nearly half of their monthly income on fuel and the other half—on electricity, water, and Internet bills, Reuters reports.
The IMF, however, has recently praised Egypt for its commitment to reforms and said in May that “The government also remains committed to continuing energy subsidy reforms to achieve cost-recovery prices for most fuel products by 2019. Together with raising revenues through tax policy reforms, this will help create fiscal space for important infrastructure projects, targeted social protection measures and essential spending on health and education.”
Earlier in May, IMF First Deputy Managing Director David Lipton said, Delays in following through on the reform of energy subsidies could again leave the budget at risk from higher global oil prices.”
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
The Egyptian people have been suffering a lot of economic hardship of recent times. Therefore, my advice for the Egyptian government is to ignore the IMF recommendations and only raise fuel prices by small amounts over a period of a few years. My second recommendation is for Egypt to withdraw from the IMF’s Extended Fund Facility (EFF) for Egypt for around US$12 billion. Instead Egypt should secure the $12 bn from Saudi Arabia and UAE in the form of interest-free loans and donations for the political support it has been giving them over the years.
The gradual removal of subsides in Egypt should be handled very gently and with a lot of humanitarian care so as not to add more suffering to the Egyptian people otherwise Egypt could be heading towards a period of unrest.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London