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Thursday, 8 February 2018

Fuel subsidies expenditure up 34% y-o-y

Fuel subsidy costs are up 34% y-o-y in 1H2017-18, Oil Minister Tarek El Molla told Reuters. The cost has gone up to EGP 51 bn from EGP 38 bn, but El Molla notes that the spent amount remains EGP 4 bn below budgeted. In total, the government expects to spend EGP 110 bn on fuel subsidies in FY2017-18.

Will this send the deficit to 10.5% of GDP, or is the 9.4% projection from last week still on? An official from the Finance Ministry tells Al Mal that the spike in fuel subsidies bill will raise budget deficit projections. This comes despite the ministry laying out conservative estimates. The official justified the discrepancy by stating that the biggest spike in global oil prices had taken place in mid-FY2017-18, so these were not accounted for. The source did not clarify whether the hike in fuel prices was factored into the ministry’s updated budget deficit projection from last week, which project a deficit of 9.4% of GDP. Ashraf Al Araby, a member of the House of Representatives’ Economics Committee, says that the fuel subsidy cost increases will lead to a budget deficit closer to 10.5% of GDP, though he does not explain where he got those figures.

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