Cairo - Mubasher: The recent remarks by the Egyptian minister of petroleum have sparked wide controversy, after he noted that Egypt will not abolish fuel subsidies, but will instead reduce it in the upcoming three years.
The minister said that the plan to lower subsidies will be completed in 2019, while the government will remain in control of oil prices.
The documents of the International Monetary Fund (IMF) showed that the Egyptian government is committed to gradually raise the prices of the majority of oil products until they reach 100% of the cost by fiscal year 2018/2019, and to completely eliminate electricity subsidies within five years.
This comes at a time when the government revealed the details for the new general budget, showing a clear differentiation between the government’s expectations and the IMF’s forecasts.
The Ministry of Finance (MoF) estimated oil subsidies at EGP 150 billion compared to EGP 36 billion set by the IMF, with the budget deficit expected between 8.5% and 9.5% compared to a rate of 8.3% by the international organisation.
Analyst Nouman Khaled said that these remarks point to current negotiations between the IMF and the government to modify the economic reform programme.
If an agreement was to be reached regarding oil products, it will be harder to neglect an important commodity such as diesel which dominates the larger share in government subsidies, and if diesel prices were to be raised, this will lead to an increase in the prices of all commodities, he explained.
Khaled also dismissed claims that the IMF could freeze the second tranche of the $12 billion loan due to the increase in oil subsidy volume compared to the agreed-upon rate, and the gap between the projected budget deficit and that set by the IMF.
The analyst attributed that to the commitment of the Egyptian government, which achieved the hardest part of the economic reforms by floating the local currency and reducing subsidies.
A visit by an IMF delegation was anticipated next month to discuss the loan’s second tranche. It was announced that it will be delayed because the MoF is focused on preparing the budget proposal, which will be presented to the House of Representatives.
Khaled also indicated that reducing the support of petroleum products could be delayed to the fourth quarter of 2017, as Aramco’s oil shipments will be resumed, thus reducing import costs.
The head of the research department in Pharos Holding for Financial Investments, Radawa El Swaifi, said that the IMF did not expect the recent surge in inflation rates by 30%, as well as the EGP depreciation against the USD, which should be taken into account by the IMF, alongside the recent protests against the supply ministry attempts to eliminate bread subsidies.
