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Wednesday, 30 May 2018

Is gov’t hinting fuel prices could rise more than previously expected?

Is gov’t hinting fuel prices could rise more than previously expected? The Ismail Cabinet has reportedly been importing fuel at a price of USD 75/bbl, according to documents, which state-owned Ahram Online claims to have obtained. As a result, the government is expected to pay EGP 103.8 bn for fuel imports. Vice Minister of Finance Mohamed Maait had told Enterprise that the Cabinet will be deciding in the coming few days whether to raise the overdraft on the FY2017-18 on account of higher oil prices, which the government assumed would average EGP 55/bbl. Oil prices have been trading at levels not seen since 2014, with Brent crude prices breaching the USD 80/bbl mark.

If the document is genuine, the Ismail government may be prompted to raise fuel prices at a steeper rate than it would like if it is going to meet the targeted budget deficit of 8.4% of GDP. While it has not said how much the hikes will be, the government did announce that it was planning on cutting fuel subsidies 19.1% to EGP 89.08 bn in the FY2018-19 budget. That plan, however, assumes an oil price of USD 67/bbl. We noted last week that analysts, including from Capital Economists, see fuel prices rise 60% next fiscal year.

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