Energy Subsidies in Egypt
The GSI’s projects in Egypt have focused on the reform of fossil-fuel subsidies fuel consumers, with the intention of contributing to the following policy objectives:
- Reduce overall fossil fuel subsidy expenditure
- Improve the fair social distribution of subsidy expenditure
In July 2014, Egypt introduced long-awaited energy subsidy cuts. These had been in the pipeline for over five years, but repeatedly delayed by political instability. Their announcement was therefore seen as a sign of consolidation by the new President, Abdel-Fattah al-Sisi, as well as a positive signal to external investors. With energy subsidies habitually driving a large, structural fiscal deficit, and constant problems of shortages, low fuel and electricity prices were widely seen as a luxury that Egypt could no longer afford. The most significant step was the 64 per cent hike in diesel prices, but similar increases affected electricity and a wide range of refined products—the most notable exclusion being heavily subsidized liquefied petroleum gas (LPG). Moreover, the subsidy reductions were set out as the first step in a five-year program to eliminate energy subsidies entirely (again, excluding LPG). This paper seeks to outline the background to Egypt’s move, assess its implementation and the public response, and to analyze future probabilities. It concludes by drawing out lessons for other countries facing similar pressures.
In early-July 2014, the Egyptian Government announced sweeping measures to significantly increase most of the energy prices paid by businesses and households. ‘Big bang’ reform of this kind is a bold break from the past: energy prices in Egypt have changed little over several decades. According to the government, the reforms represent a decisive first step in reducing the burden of energy subsidies on Egypt’s public finances. This country update summarizes these reforms and their immediate aftermath.