In its updated report on fossil fuel subsidies, the IMF said that explicit subsidies, undercharging for supply costs, accounted for 18 percent of the total, while implicit subsidies, undercharging for environmental costs and forgone consumption taxes, accounted for 82 percent.
The report showed that the explicit subsidies have more than doubled since 2020 from $0.5 trillion to $1.3 trillion in 2022, with significantly higher global fossil fuel prices.
Fossil fuel prices need an overhaul by removing explicit fuel subsidies and imposing corrective taxes such as a carbon tax that would reduce global CO2 emissions by 43 percent below "business as usual" levels in 2030 (34 percent below 2019 levels), the report noted.
“This would be in line with keeping global warming towards 1.5 degrees Celsius. Full fuel price reform would also raise substantial revenues, worth about 3.6 percent of global GDP,” read the report.
These revenues could be used to cut more burdensome taxes such as on labour, help with debt sustainability, and fund productive investments. Indeed, for developing countries as a whole, revenue gains from full price reform exceed the estimated extra spending needed to achieve the Sustainable Development Goals, stated the report.
Fuel price reform would avert about 1.6 million premature deaths per year from local air pollution by 2030. Reforming fossil fuel subsidies is in countries’ own interest, even when excluding climate benefits. For the average country, reforming fuel subsidies to the extent that they reduce CO2 by about 25 percent below baseline levels in 2030 would raise net welfare (due to local environmental benefits and removing price distortions), before even counting global climate benefits," the report explained.
Globally, full price reform would generate net welfare benefits of about 3.6 percent of GDP, according to the report.
Egypt increased the fuel subsidies in the current FY2023/2024, rolled out on 1 July, by about 24 percent compared to FY2022/2023 to hit EGP 119.4 billion as a result of the surge of the US dollar and the weakness of the local currency.
Egypt is expected to announce the new prices of fuels next month under its automatic pricing mechanism. The meeting was scheduled to be held at the beginning of July as the concerned committee convenes quarterly to review the fuel prices in light of the performance of the local currency and the global fuel prices.