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Sunday, 6 November 2016

Ismail cabinet gives a full policy review on Friday

CABINET MEETS THE PRESS to discuss float of EGP, raising of fuel prices: Fresh off its decision to free float the currency, raise interest rates and hike the price of fuel at the pumps, the Ismail cabinet’s economic group gave a full policy review at an extended press conference on Friday. Priorities going forward include improving the state’s fiscal position, improving the investment climate, strengthening the social safety net and pressing ahead with national projects.

Prime Minister Sherif Ismail also outlined a number of decisions made late last week to help cushion the inflationary impact of the float and petroleum price hikes. These include:

  • Launching an extended campaign to monitor prices and markets nationwide, with Egypt’s governors taking the lead;
  • President Abdel Fattah El Sisi’s recent signing into law of the Civil Service Act will see bureaucrats receiving their 7% annual raise, which will be applied retroactively this year at a cost to the state of EGP 3.5 bn;
  • Raising the price at which the state buys staple crops from farmers. Wheat was raised to EGP 450 per ardib from EGP 420; rice to EGP 3,000 from EGP 2,300 per tonne; corn prices rose to EGP 2,500 per tonne from EGP 2,100; while sugar cane prices rose to EGP 500 from EGP 400.
  • Ismail also said that Cairo Metro prices are unsustainable, though the PM did not state what the government plans to do about it. As we noted last month, the cabinet had tabled the decision to move prices until 2017.

Ismail also raised Egypt’s growth forecast to 6% for both the current 2016-17 fiscal year and for next year and reiterated that Egypt has met all of Russia’s conditions for the resumption of direct flights.

Next up was Finance Minister Amr El Garhy, who gave an explainer as to why a free float of the EGP and the raising of fuel prices were necessary. On the latter, El Garhy stated that raising fuel prices does not mean that subsidies were cut. This is merely a move to ease pressure on the EGPC and EGAS who import fuel as a result of the devaluation. El Garhy stressed that we cannot keep relying on GCC partners to keep bailing us out. Egypt is targeting a 6% annual growth rate for a number of years in order to create new jobs, he said, echoing the prime minister. Anything less would mean that the economic policies are not working.

El Garhy’s point on fuel prices and the ballooning subsidy budget was echoed by Oil Minister Tarek El Molla. El Molla pointed out that while the government will continue to maintain fuel subsidies for lower income households, those subsidies will increasingly be channelled through the Social Solidarity Ministry. While no details were presented on what this will mean for fuel at gas pumps, Social Solidarity Minister Ghada Waly did state that her ministry will bear more of the fiscal burden of connecting homes with natural gas. This policy was being presented as part of the mission to make subsidies more efficient and targeted to those who need them. Fuel smart cards are not dead, but more vehicles need to be registered into the system, a process El Molla believes will take until the end of this year. A decision on when it will be implemented will come next year.

His statements came as sources from the Oil Ministry expect the fuel subsidies budget for this year to almost double to EGP 65 bn from EGP 35 bn as a result of the float of the EGP, AMAY reports. The initial budget had been pegged to oil prices remaining at USD 40 per barrel. Prices have been approaching USD 50 of late, which is exacerbating the expense of subsidies.

The private sector will be a leading partner in ensuring basic commodities flow into the marketplace — and will see restrictions on imports ease, said Supply Minister Mohamed Ali El Sheikh.This could include lower customs rates for sugar imports, the minister suggested. That, coupled with the float of the EGP, means companies no longer have an excuse to reduce imports or production. Speaking on the impounding of sugar from factories and warehouses, El Sheikh said that the campaign was “fruitful.” Officials took into consideration the needs of companies that did not violate the law and which, as a result, saw their inventory restored (as was the case with Edita). The government will maintain subsidies on key commodities regardless of the FX rate, assured El Sheikh. Ration cards will see an increase to EGP 21 per month from EGP 18. Raising the purchasing prices of domestically harvested goods will cost the state EGP 5 bn, raising the commodities subsidies budget to c. EGP 49-50 bn.

The Investment Ministry is targeting foreign direct investment of USD 10-15 bn and expects inflows of foreign portfolio investment of some USD 5-10 bn, said minister Dalia Khorshid without specifying a timeframe for that investment. The ministry is also wants to raise Egypt’s ranking in the Doing Business report to 90 from a current 122. It plans to accomplish this in part through the 17 tax and nontax incentives decided on by the Supreme Investment Council last week.

Industry and Trade Minister Tarek Kabil rehashed his existing policies designed to raise manufacturing’s contribution to GDP to 21%. These include new legislation such as the Industrial Permits Act, increasing the amount of land allocated and readied for industry to 10 mn sqm in 2017, and relying on industrial complexes such as the Furniture City. On the trade side, the ministry will continue with policies that will curb imports.

The budget for pensions has been raised to EGP 15 bn, a four-fold increase over last year, said Social Solidarity Minister Ghada Waly. Retirement benefits under the Karama program will now be extended to retirees aged 60 and up from a previous age of 65. The ministry plans to increase beneficiaries of both Takaful and Karama to 1.7 mn families by next year at a cost to the state of EGP 2.5 bn. Waly added that since 1 November, her ministry has increased funding for the meals for schools program to cover all school days for public school students, whereas only half of all school days were covered previously. On a related note, Assistant Social Solidarity Minister Nivine El Qabbaj stated that the World Bank is expected to release the USD 90 mn third tranche for funding the Karama and Takaful programs by the end of the month, Al Mal reports.

You can watch the press conference in full here(runtime: 1:29:04)

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