Sunday, June 28, 2015

Further Fuel Price Hikes Needed in Egypt: Analysts
Amal Mahmoud
Saturday 27 Jun 2015

Egypt might need a second hike in fuel prices since President Abdel-Fattah El-Sisi came to power last June, analysts predict, despite lower global oil prices and savings in domestic consumption.

The move would be part of the government’s five-year fiscal reform programme to reduce the budget deficit and cut energy subsidies. The programme began in July 2014, and one of the first measures implemented was an increase in fuel prices of up to 78 percent at the pump.

"Further energy price hikes will be needed sooner rather than later if the government is to make substantial inroads into the budget deficit and place the public finances on a more substantial footing," Jason Tuvey, economist at Capital Economics told Ahram Online.

Neither the draft state budget for the 2015/2016 fiscal year, nor a statement by Egyptian General Petroleum Corp (EGPC), pointed to energy price increases in the coming fiscal year.

In the draft budget, fuel product subsidies are cut by LE9 billion to LE61 billion, according to a statement by Tarek El-Molla, chairman of the state-run Egyptian General Petroleum Corp (EGPC).

The government cut its oil price estimate to $70 per barrel for the upcoming fiscal year from $105 in the current year on the back of lower global oil prices due to oversupply.

In addition, lower natural gas and diesel consumption by the cement industry due to higher dependence on coal will contribute to a lower fuel subsidy bill in the fiscal year 2015/16, according to the EGPC statement.

However, Hany Farahat, senior economist at CI Capital, believes price hikes are still needed, especially if the government is "to retain the credibility of the economic and fiscal reform programmes."

International credit rating agency Moody's has labelled Egypt's draft budget as “credit negative” for slowing the government’s medium-term macroeconomic plan.

The government projected this year's deficit to stand at 9.9 percent of GDP, up from the 9.6 percent estimated in the medium term macroeconomic plan.

Egypt has set five-year macroeconomic targets with real GDP growth reaching at least 6% by the end of 2018/19, the fiscal deficit reduced to 8 - 8.5% of GDP, and government debt reduced to a range of 80 - 85% of GDP.

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