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Thursday, 24 May 2018

Fuel prices could rise by as much 60% next fiscal year

Fuel prices could rise by as much 60% next fiscal year: Research firm Capital Economics expects the government to raise fuel prices by as much 60% in FY2018-19 to meet IMF fiscal targets. It sees rising global oil prices as the cause for this increase. “The government will now be forced to increase administered prices by more than it otherwise would have done in order to meet IMF-mandated fiscal targets,” Capital Economics said its Egypt Macroeconomic Update (pdf). The government is planning on cutting fuel subsidies 19.1% to EGP 89.08 bn in the FY2018-19 budget, which it drafted before oil prices shot up to USD 80/bbl. This comes as the House of Representatives Budget Committee is debating whether to set aside more funds in case the government overshoots its 2018-19 budget deficit target as a result of higher oil prices.

No date has been set for the next fuel price hike, Oil Ministry spokesperson Hamdy Abdel Aziz said yesterday, Al Shorouk reports. He advised citizens to ignore news reports and rumors and wait for an official announcement from the government.

As for electricity, Capital Economics’ outlook is in line with reports on Tuesday suggesting July’s power price hikes could be as steep as 55% for top tier consumers. Other reports suggested that the minimum price increase would be 15% or 33%. Government sources have consistently said that the increases will be applied across all consumption tiers, but it remains to be seen whether the Ismail Cabinet will decide at the last minute to shield the poor and low-income consumers from the hikes.

Capital Economics sees limited, transient impact on inflation: “This may result in a slight bump in inflation in July, but we still think that the trend will be towards weaker price pressures over the coming years,” the report says. The rising inflation will be mitigated by higher interest rates, and “the adoption of inflation targeting will anchor inflation and inflation expectations.” Lower inflation will ease household spending pressures and allow the CBE to proceed with the monetary easing. As the government has made good progress on reining the budget deficit, this shall give room for the government it to ease austerity measures, the firm said.

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