By Noah Chasek-Macfoy
The IMF delegation sent to study and negotiate a $4.8 billion loan is set to leave today after two weeks in Egypt. Finance Minister Momtaz Saeed announced on Monday that Egypt would sign a preliminary memorandum of understanding before the delegation left, according to Reuters.
In the same interview, Saeed announced that the government will fully eliminate subsidies on 95 Octane gasoline either today or Thursday, a step that has been anticipated for months.
The delegation’s arrival in Egypt was delayed in order to allow the Egyptian government time to work on an economic reform plan. IMF officials including Director Christine Lagard have stated that granting the loan depends on the government’s ability to demonstrate an economic reform plan that can address the country’s growing budget deficit and poor GDP growth, which plummeted from 5.1 percent in 2010 to 1.8 per cent in 2011.
On Tuesday President Mohamed Morsy met with his cabinet to discuss the nation’s “comprehensive development plan.” Despite months of comments on a range of policy suggestions, no formal plan has been announced. The IMF loan and Morsy’s administration’s handling of it have attracted criticism including a rally held Monday evening. Critics denounce the lack of transparency in the negotiation process, in addition to fears of foreign dependency and manipulation.
The Director of the IMF’s Middle East and Central Asia department, Masood Ahmed, told the Wall Street Journal on Sunday that the Egyptian government still has not presented a final economic reform plan. Counter to the finance minister’s statement about an imminent deal, Mr Masood said “the timetable really depends on how quickly the Egyptian authorities are ready to move…We can’t approve a plan that is not there; that is why it is important that we take our time.”
According to Reuters, analysts see the decision to end subsidies on 95 octane gasoline as an attempt by the Morsy administration to prove to the IMF that they are making concrete steps toward economic reform.
95 octane is the most highly refined and most expensive gasoline on the Egyptian market, mostly used by owners of more expensive cars. Nonetheless 95 octane is currently subsidised to sell for a fixed price of EGP 2.75 or $0.45 per litre. All other gasoline formulations will remain heavily subsidised.
Professor Magdi Nasrallah, chair of the Department of Petroleum and Energy Engineering at American University Cairo predicts that without government subsidy the price on 95 octane will increase to around five pounds. Regular gasoline in the US is currently sold for $3.49 per gallon, equal to 5.62 EGP per litre.
There is a danger gas subsidy reform in the proposed structure will back fire. Nasrallah warns “If the price [of 95 octane] increased much beyond five pounds people will move to using 92 octane” eliminating the money the government would have recouped from the raised subsidy and increasing demand on 92 which might in turn increase instances of smuggling and black market sales.
In addition to the elimination of the 95 octane subsidy, Morsy administration officials have mentioned higher taxes on telephone calls and purchases of passenger cars, cigarettes, alcoholic drinks, carbonated mineral water, coffee beans and water-resistant cement as further elements of the economic reform plan.