Egypt looking to mend economy with energy moves

Egypt has been making impressive progress in straightening up its balance sheet in recent months. Steep cuts in energy subsidies coupled with a drop in world oil prices have given the Middle East’s most populous country some fiscal breathing space, following three years of increasing budget deficits, mounting debt and reduced foreign currency reserves.

Energy price hikes introduced in July for private and industrial consumers, including on car fuels and electricity tariffs, have helped to reduce the state’s high level of current spending. According to a government statement issued in November, energy subsidies for the first quarter of the fiscal year 2014/15 dropped 29% from a year ago to $3.08bn.

The reduction in the subsidy bill also included large cuts in natural gas subsidies to energy-intensive industry and the government’s rationing of fuel supplies, which led to regular blackouts throughout the summer months.

Whilst there may be further subsidy reductions on the agenda, with the country working to get rid of energy subsidies within three to five years, falling global crude oil prices mean the government could get away with less drastic cuts in the next round. In November alone, oil prices fell by 18% for a fifth straight month of declines. In total, a 40% drop in the price of benchmark Brent since June has eased Egypt’s energy import bill, giving the government time to consider its next step.