New local fuel prices and subsidy Egypt Subsidystreamlining in the 2014/15 budget

Special Brief Note

Published: July 2014

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Summary

Energy subsidies in Egypt had been a long-standing distortion to Egypt’s macroeconomic balances and investments decisions. The lion share of these subsidies accrues to the non-poor with more than half of the subsidies bill captured by the richest 40 percent of the population. Over the last decade, the fuel subsidy bill ballooned tremendously and is estimated to have reached EGP 130.4 bn in 2013/14 which is 3.25 times the size of fuel subsidies in 2006/07. Fuel subsidies are almost 1.3 times government’s spending on health and education altogether. As percentage of Gross Domestic Product (GDP), the fuel subsidies burden reached an all-time high of 6.8% in FY 2012/13 (20.4% of total government expenditure) leading, among other factors, the budget deficit to widen to 13.9% of GDP.

On July 5, 2014, the Government of Egypt (GoE) increased the selling prices of various fuel products as part of an ambitious plan to bring selling prices at par with cost recovery values in 3-5 years. The streamlining measures incorporated into the recently ratified 2014/15 budget are generally in line with Dcode EFC’s expectations included in Dcode EFC’s economic policy report entitled “Energy Subsidies: breakdown, potential streamlining measures and likely implications” published in February 2014.


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