Egypt increased fuel prices Friday, July 5 in its
latest round of subsidy cuts under a reform package agreed with the
International Monetary Fund, Egyptian authorities said.
Gasoline and Diesel fuel prices increased by 1.25 LE per litre. In a statement
issued by the Ministry of Petroleum, the 95 octane gasoline cost hiked to LE 9
from LE 7.75 per litre. The 92 octane gasoline saw an increase from LE 6.75 per
to LE 8 per litre, whereas the gasoline 80 cost increased to LE 6.75 from LE
5.5 per litre.
· The subsidy cuts are part of the IMF
conditional fiscal program which includes removal of fuel subsidies.
· Spending on fuel subsidies fell by 26 percent
in FY 2018/19 to EGP 89 billion from EGP 121 billion in FY2017/18. This
reduction has been an occurring trend for the past five years which resulted in
fuel prices increasing by 6 times.
· Consumers have been hit hard by the increase in
fuel prices with high inflation being felt through cost of production and
transport. However, many critics against the fuel subsidy program is that
subsidies are wasted on upper income groups who use subsidized fuel for their
expensive cars.
· In order to ensure that lower income groups are
protected from poverty, the government needs to target these groups by
increasing spending on social services and cash transfers. Spending on health,
education and cash transfers is more efficient as it ensures better targeting.
· This is shown in the FY2018/19 budget where
spending on fuel subsidies is replaced with social spending. Fuel subsides fell
by EGP 32 billion while spending on social services and cash transfers
increased by only EGP 21 billion..
· While fuel subsidies have been fully removed,
there is no guarantee that international fuel prices will not increase. The
government needs to increase its coordination with civil society groups and the
private sector to make sure that increases in the international oil prices will
not affect the poorest segments of society.
· Subsidies are more efficient when they target
the final stage of production. For example, the Ministry of Supply is
subsidizing the loaf of bread rather than flour, which helped to reduce
corruption in the production process. Similarly, transport fares can be
subsidized by using the smart card subsidy system.
· Subsidy cuts will increase the input costs for
producers. Though, the CBE has launched initiatives to provide soft loans and
help erase bad debts, such initiatives halted and should be resumed.
Worthy of Note:
The 2014 Egyptian constitution mandates the government to spend 3 and 4 percent
of the country’s GDP on health and education respectively.
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