Egypt slashes fuel subsidies prompting protests

06 July 2014

Petrol prices rise by as much as 80 per cent as part of austerity drive

Egypt slashed fuel subsidies on Saturday giving only a couple of hours’ warning of the impending price hikes.

The move prompted protests on the streets that were dispersed by police using teargas.

Natural gas and fuels for cars all saw dramatic increases with some fuels rising in price by as much as 80 per cent.

Speaking at a press conference on Saturday Prime Minister Ibrahim Mehleb said that the decision to raise prices was taken after detailed studies.

“How can I achieve social justice while I am subsidising for the rich [at] the expense of the poor?” he said.

Analysts remain concerned that the poor will still lose out – prompting further civil unrest.

“They’re going to have to put some kind of safety net in and there has been talk of direct cash transfers to help the poor, but none of these systems are in place yet,” said Oliver Coleman, an analyst at UK risk consultancy Maplecroft.

“There is a risk that Egypt will end up with a plan that is half implemented: subsidies will be cut and the poor won’t be supported. Much has been made about [President Abdel Fattah] Al-Sisi’s position and how strong he is, but this is an area where he is vulnerable. There could be severe consequences if the cost of living rises – and Al-Sisi knows this.”

The price hikes come days after Al-Sisi signed off a budget that outlined a cut in fuel subsidies by almost a third.

On 30 June, Finance Minister Hany Kadry Dimian said the country’s fuel bill would be cut from £E144bn ($20bn) last year to £E100bn.

The austerity drive is part of an attempt to reduce Egypt’s budget deficit to 10 per cent of GDP.

The shortfall reached an estimated 12 per cent of GDP last year as the country’s subsidy bills continued to balloon and instability meant many holidaymakers stayed away, denying the country revenue from tourism.

Although the price hikes have been met with resistance by Egyptians struggling to make ends meet amid increasing unemployment, the country’s Gulf donors and foreign oil companies are likely to be pleased by the move, which shows Al-Sisi is serious about resolving the country’s economic problems.

Last year, cuts were outlined in the budget but were not enforced due to fear of unrest.

Over the past 12 months, Egypt has received more than $20bn from Gulf states eager to see Al-Sisi remain in power.

At the heart of Egypt’s fiscal problems is an energy crisis. A rapid expansion in Egypt’s population has seen natural gas consumption rocket – forcing the former natural gas exporter to seek imports.

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