Egypt to slash fuel subsidies
cairo — Egypt will remove subsidies on most energy products by June 15, it told the International Monetary Fund (IMF) in a January letter released by the IMF on Saturday as part of a review of Cairo’s three-year, $12 billion loan programme with the lender.
This will mean increasing the price to consumers of gasoline, diesel, kerosene and fuel oil, which are now at 85-90 per cent of their international cost, said the letter, which is dated January 27.
The letter from Egypt’s finance minister and central bank governor was included in an IMF staff report dated January 28 and published following the disbursement in February of the fifth out of six tranches of the loan.
The loan programme began in 2016 and is tied to reforms that have included a sharp devaluation of the Egyptian pound and the introduction of a value-added tax. They have helped steady Egypt’s economy but also put millions of Egyptians under increased economic strain.
Fuel prices have increased steadily over the past three years. LPG and fuel oil used for electricity generation and bakeries are not included in the commitment to reaching full cost recovery through subsidy
cuts, the letter said. The government said in its letter that after starting to link less-used Octane 95 petrol to international prices — which it accomplished in April — it would introduce similar indexation mechanisms for other products in June, with the first price adjustments expected in mid-September.
The government noted it had also put in place a hedging mechanism to protect against shocks in oil and other commodities. In its review, however, the IMF “advised caution in
using financial instruments with upfront costs that protect only temporarily against extreme price movements”, referring to hedging.
Since starting the IMF loan programme, Egypt has borrowed heavily from abroad.
In its letter, the government said it intended to reduce its general debt from a projected 86 per cent of Gross Domestic Product (GDP) by the end of June to 72 per cent by June 2023. Debt was equal to 93 per cent of GDP in June 2018.