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Egypt hesitates in cutting fuel subsidies - Daily News Egypt

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Egypt hesitates in cutting fuel subsidies

The government pledged to the IMF to raise fuel prices and apply a smartcard system

A senior government source said that the Egyptian administration is facing the dilemma of being unable to make a final decision on cutting fuel subsidies to avoid stirring anger on the streets.

One of the International Monetary Fund’s (IMF) stipulations regarding Egypt’s receipt of a  $12bn is its cutting of fuel subsidies.

This would be the third time Egypt has stumbled in keeping its promises to the IMF to cut fuel subsidies and implement the second phase of a smart card system.

The source explained that the government did not pave the path for such measures. “Inflation and price hikes make things even harder,” he added.

If the government does not prepare its people for upcoming fuel subsidy cuts, prices may hike even more and a fuel shortage may emerge in which an unofficial market for the desired fuel could appear once again.

Yet, when the government submitted an official request to obtain a loan from the IMF, it pledged an economic reform programme that would increase fuel prices to match international rates and implement a fuel smart card system.

The source noted that government officials prepared a report and presented it to the presidency, leaving the decision in his hands. The report explained several aspects of the dilemma the government is facing, including the impact of the devaluation of the Egyptian pound against the US dollar, inflation, fuel subsidies, along with the price of Brent crude oil increasing more than the state budget anticipated.

“The government will not be able to rationalise spending on fuel subsidies in the fiscal year f 2016/2017 and will go above the expected figure of EGP 35bn,” he added.

The state budget allocated EGP 35bn in fuel subsidies in 2016/2017 with the expectation of the stabilisation of the Brent price at $40 per barrel. However, Brent prices have increased to $52.1 per barrel.

Minister of Petroleum Tarek El Molla told Daily News Egypt in previous statements that all options are currently being studied, including increasing the prices of fuel.

He added that the fuel subsidy exceeded allocated funds in the first quarter when Brent continued to go up.

Christine Lagarde, managing director of the International Monetary Fund, said, during a press conference in Washington DC, that the Egyptian government will have to fulfil its pledges of reform, including cutting the fuel subsidies and adopting more flexible exchange rate policies in order to receive the full amount of the agreed upon loan.

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