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Sunday, 5 February 2017

More subsidy cuts coming soon as IMF delegation reviews reform agenda progress

More subsidy cuts coming soon as IMF delegation reviews Egypt’s progress on reform program: The Ismail government is preparing a series of new “austerity measures” which it plans to discuss with an International Monetary Fund delegation currently visiting to review progress on the reform program Egypt agreed as a condition of its USD 12 bn extended fund facility from the IMF, government sources tell Al Shorouk. The measures include further hikes in the prices of fuel, electricity, and subsidized food commodities. There are divisions within the government over when to implement these new increases, as many senior officials fear the social backlash, said the source. He added that while the delegation is “sympathetic” to the dilemmas of the government, they warned of the consequences of delaying implementing them. As we noted last week, the delegation’s report on the implementation is a requirement for unlocking the second installment of the USD 12 bn IMF funding.

While we’re on subsidies, Patrick Werr points to Egypt’s fertilizer industry as a clear case of how subsidies distort the market. In his column for The National, Werr notes that subsidising energy to fertilizer producers has not only led to farmers overusing them on crops, adding pollutants to the Nile and Mediterranean, but also resulted in shortages in the market as producing fertilizers and selling them at the prices set by the government became a money losing endeavour.

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