The Egyptian authorities decided to go ahead with hikes to subsidised government-set fuel prices on Thursday, lifting gasoline and diesel prices by between 17-66% and raising the price of a litre of gasoline 92 to EGP 6.75, up from EGP 5. The price of gasoline 80 and diesel fuel both increased from EGP 3.65 to EGP 5.50.
Moreover, the price of gasoline 95 increased from EGP 6.60 to EGP 7.75, marking 17% increase, while liquefied natural gas (LNG) cylinders increased by 66% to reach EGP 50, up from EGP 30.
This is the third time fuel subsidies have been cut since November 2016, when Egypt adopted its ambitious economic reform programme supported by the International Monetary Fund (IMF), and the fourth time since President Al-Sisi took office in mid 2014.
Fuel prices have now quadrupled since mid 2014 for some products in terms of the Egyptian pound; the sharp currency devaluation, which took place last November, had offset the bulk of the previous adjustments.
Moreover, the Egyptian government aims to cut petroleum subsidies by about 26% and electricity subsidies by 47% in the draft budget for fiscal year (FY) 2018/19 recently approved by the Parliament.
The volume of subsidies in the new budget amounted to EGP 89.08bn, down from about EGP 120.93bn in FY2017/18.
Brent crude prices had been rising, with prices climbing more than 40% over the past year. Brent rose by more than $1.10 on Thursday to reach a high of $80.50 per barrel, the highest since late 2014.
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.”
“Subsidy reduction makes possible a more efficient allocation of resources across the economy, which will be an important element in unlocking Egypt’s economic potential,” he added.
It is expected that Egypt will be affected as the value of financial allocations for petroleum subsidies is based on a Brent crude price of $67 per barrel.
Each $1 increase in the Brent crude price would cost the state EGP 4bn, according to the draft budget.