Cairo– In a move that observers saw expected, given the Egyptian borrowing file, the Egyptian government announced its plan to lift the full support for fuel by the end of 2025.
Prime Minister, Mustafa Madbouly, confirmed during a press conference held last Wednesday, that the government plan takes into account the maintenance of diesel and gas cylinders in a large part.
According to Madbouly, the government runs the fuel file with great care to ensure the stability of the local market and achieve a balance between providing financial resources to the state and protecting citizens from any negative impacts.
This government trend contradicts previous statements by the Prime Minister last October, when he excluded the increase in fuel prices if global oil prices stabilized at $ 70.
The average oil prices currently range between 67 and 69 dollars, while the general budget for the current financial year has set the price at about 82 dollars.
The government announcement comes just one day after the approval of the International Monetary Fund, to exchange 1.2 billion dollars, the value of the fourth slide of a loan that Egypt requested, with a total value of 8 billion dollars.
Since 2014, the authorities raised fuel prices 12 times, last October, and last year witnessed the high prices of petroleum products 3 times.
The share of support provided for petroleum materials according to the state budget for the current fiscal year is estimated at about 155 billion pounds (3 billion dollars).
The secret in the box
Mustafa Youssef, Executive Director of the Center for Development Studies, says that the government step to lift fuel subsidies was expected, given the fact that lifting the full support is one of the requirements of the International Monetary Fund to agree to disburse the last loan segments.
He adds that the move was delayed about two years “according to the agreement with the IMF, when it was completely raised, and it was scheduled for 2023, but the war on the Gaza Strip and its economic repercussions brought about flexibility with the international establishment with Egypt and allowed postponement.”
During a press conference, last week, the head of the Monetary Fund Mission to Egypt, Ivana Vladkova, said that the Egyptian authorities have committed to reducing the prices of fuel products to the levels of cost recovery by the end of December 2025.
The requirements of the International Financial Corporation to spend loans to Egypt include restructuring of support to ensure the efficiency of financial resources distribution.
Youssef adds to (Al -Jazeera Net) that the Egyptian government in general responds to the requirements of the IMF on the issue of structural reform of the economy at periods and not immediately, in order to avoid popular anger, which is what officials of the fund understand.
It is expected that lifting of fuel subsidies will lead to an increase in the prices of commodities and services at rates ranging from 30 to 35%, suggesting more decrease in the purchasing power of citizens as a result of the decision.
And on the factors that will determine the new prices for fuel after lifting the support from them, the Executive Director of the Center for Development Studies comments that the global price is supposed to be the standard on which the local price is determined.
Prices set mechanism
The economist, Abdel Nabi Abdel -Muttalib, agrees with Youssef about considering the lifting of fuel subsidies an expected step, noting that getting rid of fuel subsidies is one of the most important recommendations that the International Monetary Fund provides to all the economies that resort to advice and support.
He affirmed that the recent government trend is linked to Egypt’s pledges to the IMF to obtain the last loan with 8 billion dollars.
According to the data of the Central Bank of Egypt, the value of the Egyptian external debt is about 155 billion dollars.
On the repercussions of the decision, the economist expects that fuel prices will rise by 10 to 15%, which will increase the costs of production of goods and services by rates ranging from 20 to 25%.
“Of course, the consumer will bear these increases, which will be a burden on the poor and low -income classes.”
According to official indicators, the annual inflation rate fell to 12.8% in February, compared to 23.2% in January of the same year.
Unlike Youssef, Abdul -Muttalib ruled out that the global price is the determinant of fuel prices after raising the total support from them, adding, “The state will not be able to deal with fuel prices, according to international prices, especially if these prices decrease.”
The economist expects that the government will create a specific mechanism to manage pricing, but at the same time it is likely that the government will resort to the global price with the addition of a profit margin to it.
Expelling and recession
Another angle referred to by the professor of economics at the University of Auckland, Mustafa Shaheen, which is the liberalization of the local currency exchange rate and its impact on the prices of petroleum products.
In March of last year, the Central Bank announced the liberalization of the exchange rate, which led to a decrease in the pound against the dollar from 30 pounds to about 50 pounds.
Shaheen shows to Al -Jazeera Net that fuel prices decreased globally, but the local market was not affected by this decline and the price remained on its way to rise due to the floating of the pound, considering the high prices as an indirect tax on citizens.
This is evidenced by the size of the support scheduled for petroleum products in the state’s general budget for the current fiscal year, and he adds: “Although the size of the scheduled support is large and despite the decrease in prices globally, the high prices increase at the local level.”
The economy professor expects that consumers will be greatly affected by the lifting of fuel subsidies, especially with the low incomes, which will lead to an economic depression, he said.
Street confusion
The government decision regarding fuel prices in the Egyptian street resulted in the two parties, the seller and the buyer.
Massad, a fruit seller, says that fuel prices directly affect the price of the product that he sells, and explains to (Al -Jazeera Net): “Some of the machines used in agriculture use fuel, as well as using cars to transport the crop from the farm to the place of sale.”
The seller does not imagine how things will be with the new situation after the government decision is applied, and he adds: “The prices are really high and we suffer as traders from the lack of customers’ demand.”
The same confusion is the consumer, and Samia Amin, an employee, says that she suffers every month from the burden of reconciling the family expenses and her husband entered in addition to her salary.
She added to (Al -Jazeera Net): “The salaries are correct more than once with government decisions in recent years, but they are increases that do not keep pace with successive prices.”
With the expected increase in prices, the Egyptian employee will face a greater burden to manage the monthly expenses of her family, she says, “I do not want to think about how to face the future of prices … I am facing a crisis currently and I have no ability to think more.”
