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Egypt to cut electricity subsidies by 2022

March 28, 2019 at 12:41 pm

Poor neighbourhoods in Egypt suffer from improper infrastructure and limited access to electricity [Jarod Carruthers/Flickr]

Egypt will phase out electricity subsidies entirely by 2022, the country’s electricity minister Mohamed Shaker announced yesterday, as the government continues to implement stringent austerity measures as part of its economic reform plan.

Revealing the plans on a television interview last night, Shaker said that prices would gradually increase over the next three financial years, ending in July 2022. The cuts come as part of the government’s strategy to completely liberalize public services such as water, electricity, and sanitation, as well as cutting subsidies on major commodities including cooking gas used in homes, diesel and gasoline.

Egypt has increased electricity consumption rates every year for the past four years, from the beginning of President Abdel Fattah Al-Sisi’s first term in 2014; prices were subsequently raised in August 2016, July 2017 and June 2018.

The rises were implemented as part of Egypt’s commitment to economic reforms stipulated by the International Monetary Fund (IMF) in accordance with the country’s loan agreement. Finance authorities also introduced VAT for the first time last year, increasing the cost of countless goods; it simultaneously cut state subsidies on fuel, electricity, and water.

READ: Egypt, international institutions discuss $2bn loan for ‘transport development

In August, Moody’s Investor Service boosted Egypt’s long term issuer rating from “stable” to “positive”, arguing substantial progress had been made by state regulators.

The government’s deficits have shrunk, its national debt burden has begun to fall and foreign exchange buffers have been rebuilt, as President Al-Sisi’s austerity plan has curtailed public spending.

However, the policies have added to the financial woes of many millions of Egyptians living below the poverty line, who have complained of being unable to afford basic necessities since the price jumps. Inflation has soared after the government floated the Egyptian pound in 2016, and last year, the Treasury announced that it was planning to increase public tax revenues by 131 per cent by 2022.

The impact has been so severe, that it has even prompted popular protests in the heavily surveyed state; last year, in an unprecedented show of digital dissent, hundreds of thousands of Egyptians took to Twitter to voice their discontent and call for Al-Sisi to step down in the aftermath of fuel and electricity subsidy cuts.

The results of the measures have also been mixed; despite decreasing the debt burden, foreign direct investment in Egypt fell by some $200 million to $7.7 billion in the 2017-2018 fiscal year according to the central bank, with most of the existing funding still concentrated in the gas and oil sectors.

READ: Egypt’s foreign reserves hit $44bn in February