Increase in electricity prices during COVID-19 might help Egypt restructure the economy and eventually remove subsidies beyond 2024-2025, says GlobalData

Egypt’s plan of cutting down on subsidies came after the devaluation of the national currency, post the three-year IMF program. As a likely measure to remove subsidies beyond 2024-2025, the Egyptian Ministry of Energy increased the electricity consumption costs for the residential sector by between 17% to 30% (19.1% average). The measure earlier was expected to be valid for the FY2020-2021 and the subsidies were decided to be discontinued beyond 2022, however, due to the COVID-19 pandemic hurting the economy and consumers the deadline experienced an expected pushed back.

Even though the subsidy lifting delay will cost the government ex-chequer over EGP 26 billion (approximately $1.6 billion), it would probably not overburden the population which is already reeling under the economic impacts of the COVID-19. Household consumption accounts for over 41% of total power use. Hence cutting down on subsidies in the residential sector having a significant share of the pie might aid the overall cause.

The North African country is already reeling from COVID-19 ill-effects as the global tourism came to a grinding halt. The financial hardships have caused a dent in the government budget, approximately 130 billion Egyptian pounds ($8.66 billion) disappeared from the country’s GDP. 

Somik Das, Senior Power Analyst at GlobalData, comments: “As repercussions of the COVID-19, the nation was plagued by a crisis in funding. The revenues are expected to drop and the expenditures are expected to increase eventually causing weakening of the general budget. The country secured a $2.8 billion in emergency financing, as part of the country’s plan to cover its funding gap. Following this, a $5.2 billion stand-by arrangement was reached with IMF, which would likely alleviate the economic impact of Covid-19. “With a stringent austerity measure of reducing the subsidies, the government expects to cut down on spending which can be implemented in restructuring the economy post the crisis. The government is using all possible tools that are expected to rationalize spending without greatly affecting people and maintaining the state’s commitments.”

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