Egypt has potential to grow, but sustainability depends on government: World Bank

Sara Aggour
4 Min Read

Egypt, along with six other Middle Eastern countries, has potential to move to a higher economic growth path, said Lili Mottaghi,

Fuel subsidies have mainly benefited the rich in Egypt, the World Bank notes (Courtesy of World Bank)
Fuel subsidies have mainly benefited the rich in Egypt, the World Bank notes (Courtesy of World Bank)

World Bank MENA economist and author of the report “Predictions, perceptions and economic reality”.

Mottaghi added, however, that the sustainability of growth will depend heavily on the economic policies that governments choose to implement.

It its report, the World Bank stated that it aims to look at “the actual growth performance of these countries [seven Middle Eastern countries] and highlights the limitations of forecasting in the wake of the 2011 uprisings, at the consequences of the growth slowdown, including unemployment, where perceptions may diverge from reality”.

Besides Egypt, the report tackled the economic situation in Tunisia, Yemen, Iran, Libya, Jordon and Lebanon, where the pace of the projected growth remains “far below” the rate of the rapid growth that was expected from the seven countries in the 2000s.

The sustainability of growth remains uncertain due to the structural problems that have hindered growth, the report added.

Discussing the subsidies in the seven countries, the report pointed out that they account for over 10% of the GDP and, aside from Iran; they are at least 20% of the total expenditure.

“Egypt spends seven times more on fuel subsidies than on health,” the report read.

The report indicated that the subsidies system in Egypt for commodities is inefficient and hugely expensive. The World Bank explained that government spending on fuel subsidies has increased notably throughout the past decade.

The bank highlighted, however, that the increase has benefited the rich more than it did the poor.

“An estimate for FY2009 showed that more than 60% of the fuel subsidies went to the richest quintile of the population while the poorest quintile received only 7% of the subsidies,” the World Bank said.

On the shortcomings of fuel subsidiaries, the report stated that they have encouraged the capital-incentive and energy-incentive industries, which resulted in harming the employment-creating industries. The report added that it has also contributed to the traffic congestion in urban areas because it encouraged Egyptians to drive cars.

The government recently approved the 2014/2015 state budget, cutting the fuel subsidies by some 44bn with the aim to reduce the budget deficit to 10% of the GDP.

The price of 92 octane fuel went up from EGP 1.85 to EGP 2.60; 80 octane fuel from EGP 0.90 to EGP 1.6; and diesel fuel and kerosene from EGP 1.10 to EGP 1.80. The price on 95 octane fuel went up to EGP 6.25, while the price of automotive natural gas was raised to EGP 1.10 per cubic metre of gas from EGP 0.45.

“The price hike, which ranged between 12% to 80%, is an important step to reduce the massive energy subsidies, currently standing at 7 % of GDP and 22 % of total government spending,” the World Bank’s report said.

James Moran, head of European Union delegation to Egypt, welcomed the recent decision taken by the Egyptian government to reduce subsidies on petroleum products, saying: “Egypt has begun its way towards the implementation of a plan for economic reform.”

He described the decision to raise fuel prices as “a very important step and a rational and noble attempt” to restructure the Egyptian economy.

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