IMF: Completion of Fuel Subsidy Reform to Attract Investment

IMF: Completion of Fuel Subsidy Reform to Attract Investment

The International Monetary Fund (IMF) has issued the report of the fifth and final review of Egypt’s economic reform program supported by an arrangement under the Extended Fund Facility (EFF), as the completion of the review allowed the authorities to draw the equivalent of about $2 billion.
The report, which was published on October 11, 2019, asserted that the completion of fuel subsidy reform will encourage energy efficiency, attract investment in more labor-intensive industries, and free up fiscal space for high-priority expenditures, including targeted cash transfers to low-income households.

IMF clarified that the automatic fuel price indexation mechanism is critical to safeguard the budget against the re-emergence of subsidies from future changes in fuel prices, and to signal the continued commitment to the fiscal discipline needed to reduce public debt.
The above-mentioned mechanism is intended to maintain prices at cost-recovery levels and safeguard the budget from unexpected changes in the exchange rate and global oil prices, as the price adjustments will initially take place quarterly and will be capped at 10% as a smoothing mechanism.
On this basis, Egypt trimmed gasoline prices by EGP 0.25 per liter on October 4, 2019.

IMF expected the fuel subsidy bill to fall to 0.8 % of GDP in 2019/20 from 1.6 % in 2018/19 in comparison to 3.3 % in 2016/17.
The IMF’s report clarified that the Egyptian General Petroleum Corporation (EGPC) has cleared an additional $150 million of its outstanding arrears, which at the end of December 2018 amounted to $1 billion, highlighting that EGPC is committed to clearing outstanding arrears by end December 2019.

It is worth mentioning that in July 2019, the Minister of Petroleum and Mineral Resources, Tarek El Molla, announced that outstanding arrears declined to $900 million by the end of June 2019, citing Reuters.


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