Egypt starts reducing energy subsidies

The International Monetary Fund has welcomed Egypt’s decision to reduce energy subsides by 1.2 per cent of GDP in 2015/2016 compared to 3.1 per cent in the current fiscal year, IMF reported said.

IMF said that the subsidies have long been an important component of the social contract in Egypt. The budgetary cost of these untargeted subsidies reached over six per cent of GDP in 2013/14, reflecting their universal provision as well as high international oil prices.

The Anadolu Agency said that according to the IMF report, Egypt allocated around 100.3 billion Egyptian pounds ($13.2 billion) for energy subsidies during the current fiscal year. This is 20 per cent less compared to the previous year.

The long-delayed assessment projected the Egyptian economy to grow by 4.3 per cent in the fiscal year 2015/2016 and confirmed a forecast of 3.8 per cent growth for the current year, which ends on June 30. Growth for the previous period stood at 2.2 per cent.

IMF staff welcomed the Egyptian government’s plans to reduce the budget deficit over the next five years. “The government’s objectives are to reduce the budget deficit to 8–8.5 per cent of GDP,” the report said.

It added: “At the same time increasing significantly spending on health, education and scientific research as mandated by the new constitution.”

The report blamed price distortions on worsening the energy crisis. “Over time, the price distortions associated with the subsidies have resulted in a worsening energy crisis, causing large budget deficits and weighing down on growth,” the report said.

In addition, the IMF report stressed that the Egyptian authorities intend to eliminate all subsidies over the next five years, with the exception of the fuel targeted to the poor.