EGP 89.75bn allocated for petroleum subsidies, EGP 16bn for energy subsidies in FY 2018/19

Abdel Razek Al-Shuwekhi
3 Min Read
The IMF said that further increases in global oil prices would put pressure on the Egyptian budget, and require a larger adjustment of domestic fuel prices to achieve cost recovery and preserve the fiscal consolidation objectives under the economic programme.

The planned petroleum product subsidies allocation for fiscal year 2018/19 accounted for EGP 89.75bn compared to EGP 110bn in the FY 2017/18 budget, while electricity subsidies registered at EGP 16bn, down from EGP 30bn in the same period, according to the draft budget sent to parliament for approval, which Daily News Egypt obtained a copy of.

The government document showed that the average value of a barrel of Brent crude was set at $67, which was based on the forecasts of the International Monetary Fund and the World Bank that the price of Brent crude will stabilise in the $65-70 range.

In the FY 2017/18 budget, the government set the value of Brent crude at $50-55 per barrel. However, in the last quarter of 2017, the prices soared to more than $60 per barrel, which led to increasing the petroleum product subsidies bill from the EGP 110bn that was set by the government, to around EGP 120bn expected in FY 2017/18’s financial results.

Moreover, one of the risk scenarios set by the government that may affect the planned figures was the increase in the US dollar’s value against the Egyptian pound: for every EGP 1 increase in the exchange rate value, the petroleum subsidies are forecast to increase by EGP 12.5bn (0.24% of GDP).

Meanwhile, a $1 increase in crude oil prices would lead to an almost EGP 4bn increase.

In terms of food commodity subsidies, the government allocated EGP 86.17bn in the FY 2018/19 budget, compared to EGP 63bn in the previous year, increasing the allocated amount by EGP 23bn, or 36.6%.

On the other hand, the allocation for the Household Natural Gas Connection Project was increased 191.7% to reach EGP 3.5bn in FY 2018/19, from around EGP 2.3bn in FY2017/18. The new budget targets adding 1.3m households to the natural gas grid to reduce the sum of subsidies allocated for LPG cylinders.

Despite the subsidy cuts, the new budget targets increasing public salary spending to EGP 266bn, up from EGP 240bn in the current budget, and spending on social welfare to EGP 332bn.

The increase in social welfare spending aims to curb any negative effects of the upcoming subsidy cuts, which are expected to raise prices across the board.

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