Egypt confirms record jump of 910 coronavirus cases on Wednesday    Remembering Faten Hamama: More than Egypt's 'Lady of the Silver Screen'    A ray of hope amid pandemic as cameras roll again in Nollywood despite Nigeria's cinemas still dark    Players in Romanian league risk 12-match ban for spitting    Spanish government contemplates return of fans for 2020-21    Egypt's bourse to reopen Sunday with regular working hours    Trump threatens social media after Twitter fact-checks him    Japanese fans can cheer remotely at empty stadiums    Iran's newly elected parliament convenes despite pandemic    Russia has not sent military personnel to Libya: Ifax cites Russian lawmaker    Oman to end lockdown of Muscat governorate on May 29    EU exec to propose 1.1 trillion budget for bloc in 2021-27: Source    Japan approves fresh $1.1 trillion stimulus to combat pandemic pain    21 festivals in one, 100 movies, 35 nations: Global Film Festival to kick off on YouTube    Central bank says Egyptians withdrew EGP 9 billion from ATMs during Eid    Egypt's Ain Shams, China's Nanjing universities discuss COVID-19 cooperation    UK faces political crisis after Boris Johnson's top advisor breached lockdown    Egypt's MSMEDA provides EGP 1.1bn funding in 4 months    US company trials coronavirus vaccine candidate in Australia    Banks will operate with different working hours after Eid    Saudi Arabia to end curfew on June 21, except in Mecca    US President Trump urges Libya de-escalation on call with Erdogan: White House    Sisi congratulates Egyptians on occasion of Eid Al-Fitr    Mental health apps draw wave of new users as experts call for oversight    Zuckerberg led Facebook to an all-time high this week    Egypt's Sisi congratulates Egyptians on the occasion of Eid El-Fitr    Egypt's interior ministry gives gifts to families of policemen killed or injured in the line of duty    Egyptian police kill 21 terrorists who plotted attacks on Eid El-Fitr    Italy's football federation sets August 20 as deadline for finishing season    Egypt's decision to resume sports activities breathes life into hopes to restart league    Egyptian Premier League final decision to be taken before May-end: minister    Egypt's 12 MPs came into contact with coronavirus infected parliamentarian    iRead launches new activities, competitions to pread the passion for reading    British Council in Egypt makes its digital library for free amid coronavirus    Sheikh Mahmoud El-Tablawy dies at 86    Kuwait breaks up riot by Egyptian workers seeking repatriation – ministry    Egypt, MENA growth forecast at 2.7%, -0.3% respectively: IIF    Prosecution warns of EGP 300k fine or 2-year jail for spreading fake coronavirus news    Al-Sisi discusses joint coronavirus efforts with Abu Dhabi Crown Prince    Saudi Arabia intercepts missiles over Riyadh    CBE temporarily regulates cash deposits, withdrawals    Lagging COVID-19 response to shield frail economy: Rouhani    Weekend's virtual concerts, plays, and festivals people can stream at home    Brazilian football stadiums transformed into hospitals to treat coronavirus patients    Amid coronavirus outbreak, Egyptian Premier League cancellation seems inevitable    Stay At Home: Ministry of Culture to publish free books online for public browsing    Ethiopia has not sent Egypt latest designs for GERD: Minister of Irrigation    Nigerien President hails Egypt's diplomatic attempts to reach agreement over GERD    

Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.

Burning up energy subsidies
Published in Al-Ahram Weekly on 02 - 11 - 2017

Since the floatation of the Egyptian pound on 3 November 2016, the government has increased the price of fuel twice by lifting subsidies to decrease the budget deficit as part of the reform programme that allowed it to secure a $12 billion loan from the International Monetary Fund (IMF).
Food and energy subsidies represent 25 per cent of the state's expenditures, a burden the ailing economy can no longer shoulder as it strives to lower a budget deficit of almost 11 per cent.
The first hike, which saw fuel prices increase by 47 per cent, took place hours after the Central Bank of Egypt decided to float the local currency. The second was in July, eight months after the initial price hike when fuel costs went up by an average of 50 per cent. In 2014, the government raised fuel prices by up to 78 per cent, the first time fuel went up after the 2011 Revolution.
According to the two changes, the price of 92-octane gasoline increased from LE2.6 to LE5 per litre. Diesel and 80-octane, the most commonly used kinds of fuel, surged by 100 per cent and 120 per cent respectively to reach LE3.65 per litre.
The most aggressive increase, however, is the 275 per cent jump in the price of cooking gas cylinders used mainly by the poor. The cylinders are now sold for LE30.
The value of subsidies allocated for energy — including different fuels and electricity — in the current fiscal year 2017/2018, amounts to LE110 billion against LE64 billion in the 2016/2017 budget. Fuel subsidies in the current fiscal year's budget have been estimated at LE57 billion, up from LE35 billion during the previous fiscal year. Subsidies reduction saved LE35 billion that would be directed to social spending.
The amount of government subsidies directed to energy in the current fiscal year could increase dramatically as the pound is currently worth LE17.75 against the dollar, while the LE110 billion worth of subsidies for fuel and electricity were calculated based on LE16. Additionally, international oil prices have increased to $57 per barrel, while the national budget was estimated based on a price of $55.
Fuel Subsidy
“This means the government would move fuel prices up again in a few months to avoid going beyond the planned subsidies,” said Fakhri Al-Feki, former assistant director of the IMF. The Ministry of Petroleum announced there will not be other increases in fuel prices this year. Experts including Al-Feki predict it could happen before the end of the current fiscal year in June 2018.
According to a report issued by investment bank Arqaam Capital, the government shoulders around 65 per cent of the cost of petroleum products which means there is room for more aggressive reductions in subsidies.
The most subsidised product is butane cooking gas cylinders with the actual cost being around LE115 per cylinder while it is currently sold at LE30.
The government will continue with its economic reform plan, Al-Feki added, especially that the most difficult decisions of devaluing the pound and decreasing subsidies have already been taken. According to Al-Feki, a current visit to Egypt by an IMF delegation to review its economic reforms will most likely be followed by a recommendation to give Egypt another installment of the $12 billion loan.
Egypt received the first tranche of the IMF loan worth $2.75 billion in November 2016, and the second came in July 2017 with a value of $1.25 billion. The third installment, worth $2 billion, is expected between December 2017 and January 2018.
The government is also moving according to a plan approved in 2014 by the cabinet to reduce subsidies on electricity over a period of five years that was supposed to end in 2019 but was extended to 2022 as announced in July 2017 by Mohamed Shaker, minister of electricity and renewable energy.
Fuel Subsidy
The latest increase in electricity prices was a 33 per cent hike in July 2017 in all seven consumption brackets. Although the increase was not related directly to the IMF loan and economic reforms are being taken as stressed by Shaker, such reforms, mainly the devaluation of the pound, have led to the cost of electricity production increasing, and consequently the subsidy bill. The previous increase was in August 2016 with an average of 40 per cent.
The average cost of electricity production per kilo watt doubled following the depreciation of the pound to reach LE1.02, according to Shaker, leading the value of subsidies allocated for the electricity sector in the fiscal year 2016/2017 to jump to LE52.7 billion from LE29 billion in 2015/2016.
If the electricity subsidy was to be lifted completely by 2019, taking into account the increased value of government subsidy following the devaluation of the pound, it would mean that sharp increases in the price of electricity should be implemented. To avoid that, the Ministry of Electricity decided to extend the deadline to 2022.
Hikes in energy prices have fed inflation which followed an upward trend after the devaluation to reach a 30-year high of 33 per cent in July. It has started to ease down the last two months.
Since the increases in fuel and electricity prices have a direct impact on consumer products and transportation costs, a number of government decisions were taken in June 2017 to try to ease the burden on lower income citizens. According to the Ministry of Finance, about LE85 billion has been allocated for so-called social security procedures to protect the poorer social class from the inflationary effects of economic reform. These will benefit more than 90 per cent of Egyptians according to the Finance Ministry by increasing monthly food subsidies and increasing civil servant pensions, among other procedures.

Clic here to read the story from its source.