Egypt’s fuel subsidies saw drop by 45% in 1H of FY2020/21, reaching EGP 8.4 mln

Doaa A.Moneim , Thursday 4 Mar 2021

The government allocated EGP 52.963 billion for fuel subsidies for FY2020/21, according to the finance ministry


Egypt's fuel subsidies dropped by 45 percent during the first half (1H) of the current FY2020/2021 to post EGP 8.4 billion (about $538 million), down from EGP 15.2 billion in 1H of FY2019/2020, Minister of Petroleum and Mineral Resources Tarek El-Molla announced on Thursday.

The government allocated EGP 52.963 billion for fuel subsidies for FY2020/21, according to the finance ministry.

Minister of Finance Mohamed Maait announced in February that the is tageting decreasing such subsidies by 43 percent to reach EGP 28 billion (about $1.6 billion) in the current FY2020/21, down from EGP 120 billion included in FY2017/18 budget.

In FY2019/20, fuel subsidies witnessed a sharp decrease by 77 percent to reach EGP 18.6 billion.

From 2016 to 2019, Egypt adopted a $12 billion economic reform programme backed by the International Monetary Fund (IMF) that included specific measures to improve Egypt’s fiscal indices and alleviate heavy burdens on the state’s budget, including phasing out fuel subsidies.

The IMF said that such a measure will create more room in the budget for better-targeted social spending, as well as more investment in health, education, and public infrastructure.

Accordingly, Egypt’s government announced in July 2019 the formation of the fuel automatic pricing committee, which is responsible for setting fuel prices according to global prices, and for reviewing the prices quarterly (every three months).

In the same month the government lifted fuel subsidies entirely, following serious steps towards phasing out fuel subsidies, which led to raising fuel prices five times from 2014 to 2019.

The new mechanism came into effect in October 2019, when the committee lowered prices of all gasoline types by 25 piasters per litre.

Dealing with COVID-19 related challenges in the Egyptian economy, Egypt fielded a request to the IMF to get a 12-month stand-by agreement loan in order to pursue the government’s second wave of reforms.

According to the loan deal, the IMF said that there are no additional measures on fuel pricing, affirming that the fuel indexation mechanism that Egypt introduced in 2019 ensures that retail fuel prices remain at cost recovery and that the budget is unaffected through regular quarterly adjustments to reflect changes in world oil prices and movements in the exchange rate.

Amid the dual shock of the COVID-19 crisis and the global oil war, Egypt’s automatic fuel pricing committee decided in its quarterly meeting to keep fuel prices unchanged, leaving the price of 95-octane fuel at EGP 8.50 ($0.53) a litre, 92-octane fuel at EGP 7.50 ($0.46) a litre and 80-octane fuel at EGP 6.25 a litre ($0.39), which are the current prices as well.

Gas oil prices were kept at EGP 6.75 ($0.42) a litre.

The decision came after reviewing global Brent crude prices and the currency exchange rates during the April-June period, the ministry said in a statement.

The decision also took into account the negative repercussions of the coronavirus pandemic on global economic activity and the oil and energy market.

In January, the Fuel Automatic Pricing Committee decided to keep the prices of fuels and petroleum products within the domestic market unchanged for the first quarter of FY2020/21 for the sake of maintaining the stability of the domestic market in light of COVID-19 outbreak.

Previously, the committee decided to keep the fuel prices unchanged in the fourth quarter of FY2019/20.

Egypt’s state budget for the 2020/21 fiscal year (begins in July 2020), is the largest in the country’s history at EGP 2.2 trillion and drafted according to the global oil prices that was set prior the pandemic and the drop in oil prices to protect the budget against any likely future shocks, according to minister Maait.

Investments directed to the oil, natural gas, and mineral wealth sector in the current FY2020/21 stand at EGP 60.6 billion, constituting 8.2 percent of the total investments allocated to all sectors in Egypt, according to the Minister of Planning and Economic Development Hala El-Said announced on Sunday.

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