The Clap:
The Egyptian government has set the new price of subsidized bread to EGP 0.20, up 4x from the current price which remained unchanged for three decades. Cabinet is reportedly also planning to hike electricity prices starting in July.
The rationale:
Cabinet is shelling out EGP 125 billion toward bread subsidies for FY 2024-2025 alone, and the state allotments — which sees the state cover 96% of production cost— “have become a threat to the financial and economic security” of Egypt, Finance Minister Mohamed Maait said last week
The price increase will add billions to state coffers:
“After the new increase the state will bear 84% of the cost, with the citizen bearing only 16%,” the country’s Supply Minister explained, adding to Asharq Business that the price hike will save the government some EGP 13.7 billion in the next fiscal year’s budget.
Prioritizing health and education spending:
Egypt plans to channel the money that would have otherwise been allocated toward the usual bread subsidization rate toward the construction of schools and health facilities, and the development of services and projects. Cabinet is mulling a replacement of subsidies with cash payments in a bid to enable citizens to funnel state support according to their individual needs, the prime minister said.
Electricity will reportedly surge 20% in July:
The government is currently undertaking studies to increase electricity prices by as much as a fifth starting next month, Enterprise reported, citing a government source familiar with the plan.
Energy guzzling industries will bear most of the brunt:
Studies are still underway to determine the new prices for factories, other industries, and individuals, and the “increase will depend on each household or business’ consumption, with the lowest consumption segments seeing the smallest jump in prices,” Enterprise noted.
Remember:
The state is prepping a strategy to entirely slash electricity subsidization over the next four years, after delaying the phaseout strategy from an initial 2019 deadline. The government said in 2022 electricity subsidies will cost the treasury EGP 76 billion by 2027.
Why this matters:
Ending energy subsidies is one of the IMF’s demands to unlock the USD 8 billion loan program. The IMF called on the government to control “unaffordable energy subsidies” and fuel prices in compliance with the prices mandated by the automatic fuel pricing committee, and channel spending instead toward social support programs.
Axing spending on electricity will also pave the way for more private sector involvement
which has been burdened since Egypt became a net importer of LNG in recent months following a fall in domestic gas production.
