The government this week raised residential electricity tariffs by an average of 12 per cent, while keeping prices unchanged for the lowest consumption bracket.
The increase, announced by the Ministry of Electricity and renewable energy, is part of the government’s ongoing efforts to reduce subsidies and implement cost-reflective energy pricing, a key pillar of its economic reform programme.
The state continues to subsidise electricity by LE100 billion annually to cover the gap between the actual cost of producing one kilowatt-hour of electricity, based on the fuel prices paid by the electricity generation companies, and the newly approved tariffs, the statement said.
Many people associated the price hike with the drone attack on a natural gas storage vessel and a regasification vessel in Damietta a couple of days earlier. Natural gas is essential to fuel electricity plants, especially during the summer months when consumption is high because of the heat.
Walid Ramadan, a public affairs strategist at consultancy firm Influence Public Affairs (IPA), said the hike was part of the government’s gradual move towards cost-reflective energy pricing and lower subsidy burdens.
However, he said that while the policy direction is understandable, the timing is sensitive, particularly during peak summer consumption and amid continued pressure on household budgets.
“A more predictable, multi-year tariff roadmap could have reduced uncertainty and allowed both consumers and businesses to adjust more smoothly,” he said.
Eliminating energy subsidies is part of the government’s commitments within the framework of its International Monetary Fund (IMF)-funded reform programme.
On Thursday, the Executive Board of the IMF completed the seventh review under the Extended Fund Facility (EFF) arrangement and the second review under the Resilience and Sustainability Facility (RSF) arrangement, allowing the authorities to draw the equivalent of about $1.8 billion.
According to a statement issued following the board’s approval, “Egypt’s economy has remained resilient to spillovers from the war in the Middle East, supported by the authorities’ timely and decisive policy response, including exchange-rate flexibility, fuel-price adjustments, and measures to contain budget spending.”
In that framework and given unstable global oil prices, observers believe a fuel hike could soon be on the cards. The government’s Fuel Pricing Committee is expected to meet in the first quarter of the current fiscal year to decide on any changes to fuel prices. Fuel prices were hiked by around 17 per cent in March this year.
According to Ramadan, key variables will be international oil prices and exchange-rate movements. This week Brent crude was trading at around $84 per barrel after falling sharply from around $90 to $91 per barrel last week, as concerns over an immediate military escalation involving Iran eased.
This remains above the $75 per barrel assumed by the government in the budget for the current fiscal year.
The government is likely to weigh these factors against the inflationary impact of any rise and the cumulative burden of it on households and businesses, he said, adding, however, that it would be a matter of the timing and scale of the adjustment.
Although eliminating energy subsidies is part of the reform efforts, in the short term it will add to inflationary pressures and raise transportation and production costs. This may temporarily weaken household purchasing power and compress business margins, particularly for small and medium-sized enterprises (SMEs) and energy-intensive sectors, Ramadan said, adding, however, that in the medium term energy-price reforms can support fiscal sustainability and reduce structural imbalances.
Economist Nada Massoud, CEO of Cairo Compass Macroeconomic Tracking Unit, an independent macroeconomic intelligence platform, explained that the effect of a fuel price hike on inflation would be more important because it affects transport costs first and then impacts the price of food and other goods a couple of months later.
She estimates that the hike in the price of electricity and any possible hike in the price of fuel will add two to three points to headline inflation over the next couple of quarters, which lines up with the Central Bank of Egypt (CBE)’s own forecast of 16 to 17 per cent for the year.
Massoud stressed the importance of shielding people from inflation. She said that benefits disbursed to vulnerable citizens are not commensurate with inflation and suggested that subsidising childcare could boost household incomes more sustainably than additional cash support. Unlike temporary transfers, childcare enables more women to enter the labour force, an area where Egypt still has a significant gap.
On an annual basis, urban headline inflation recorded 14.3 per cent in June compared with 14.6 per cent in May. Inflation had been declining until March, when its trajectory became uncertain on the back of exchange-rate fluctuations and higher energy prices caused by regional turmoil.
According to Massoud, energy price hikes help the budget deficit to some extent, but they are comparatively smooth. She noted that interest payments this year are budgeted at around LE2.3 trillion, against LE3.1 trillion in revenue and about LE4.5 trillion in total spending. That means that around 74 per cent of revenue and about half of total spending go to interest payments, she said.
A more difficult task is broadening the tax base, she noted. She suggested that policymakers should consider the idea of taxing high-end, often empty second homes, like those sitting in New Cairo or the North Coast as stores of value. Taxing underused assets, rather than leaning solely on regressive consumption taxes like VAT or utility hikes, would raise revenue more fairly, she said.
The burden of public debt and high financing needs was among the issues flagged by the IMF along with the uneven pace of structural reform.
“Efforts to reduce the state’s role in the economy and create greater space for private-sector investment, including through the divestment programme, have progressed more slowly than anticipated and need to be accelerated,” an IMF statement said.
Regional tensions are partly to blame, according to Massoud. “You do not issue an initial public offering in a market that is pricing in war risk,” she said. Nonetheless, she acknowledged the need for more space for the private sector to operate.
The government acknowledged the need to boost private sector activity, saying it is pressing ahead with measures to improve the business climate. Finance Minister Ahmed Kouchouk announced that the government will introduce new incentives and additional reforms in the coming period aimed at simplifying procedures, stimulating economic activity, and supporting businesses. He stressed that the government would continue working in partnership with the business community to address challenges and provide further incentives.
Speaking during a discussion on the sidelines of the Egyptian Exchange’s bell-ringing ceremony marking the cancellation of the capital gains tax and the introduction of a proportional stamp tax, Kouchouk said that Egypt’s reform programme is continuing independently of the IMF, noting that the government has adopted a four-year medium-term budget framework and is preparing to announce a comprehensive fiscal policy framework soon. Speaking at the same event, Investment and Foreign Trade Minister Mohamed Farid said the government is preparing a unified digital platform for company establishment and licensing that will cover 475 economic activities, as part of efforts to simplify procedures and improve the investment climate.
“What is needed is the same rules for everyone: equal tax treatment, the same customs regime, and equal access to credit, land, and other resources,” she said, highlighting the importance of implementing the pledges in the State Ownership Policy Document.
Moreover, she added, while the government’s customs digitisation efforts are commendable, they need to translate into tangible reductions in the cost of trading.
Deeper private-sector-led growth is crucial to ensure the resilience of the economy amid regional tensions, along with strong foreign-exchange buffers, prudent fiscal management, diversified energy sources and faster export growth, Ramadan said.
He added that economic adjustment must remain socially and politically sustainable, which is why he recommended greater nuance in the sequencing of reforms.
“The programme should be judged not only by fiscal targets, but also by its ability to generate investment, exports, employment, and improvements in living standards,” he said.
With the IMF programme nearing its completion by the end of 2026, the government has said it will continue its reform efforts through a plan of its own.
Ramadan stressed the importance of policy discipline and reform momentum continuing once the external monitoring framework of the IMF is removed.
“The critical issue is whether Egypt can replace the IMF’s external anchor with a strong, transparent, and predictable domestic policy anchor,” he said, adding that the end of the programme should not be a problem for investors and noting that portfolio investors will focus on inflation, exchange-rate credibility, debt sustainability, and foreign-exchange liquidity.
Foreign direct investors will look more closely at regulatory predictability, competition, taxation, customs procedures, and the ability to repatriate profits, he said.
* A version of this article appears in print in the 6 August, 2026 edition of Al-Ahram Weekly.
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