Upstream: Egypt has turned a corner
Egypt’s decision to hike fuel prices is a bold measure that will help to settle outstanding debts to international oil companies that have faced payment delays since the revolution in 2011, writes Nassir Shirkhani.
The cut to energy subsidies will save the government $2 billion a year and discourage wasteful consumption in a country where fuel prices remain among the lowest in the world.
The move comes after the Oil Ministry said it had paid off $2.2 billion to international players so far this year, reducing the arrears to only $2.3 billion.
This is a remarkable achievement, given that the debt to international oil companies stood at more than $6 billion in 2013. Egypt is on track to clear the debt in 2019 as part of its commitment to the International Monetary Fund (IMF).
Cairo is well aware of the importance of pleasing international players. Their willingness to invest in Egypt despite post-revolution chaos has turned the oil and gas sector into the most successful segment of the economy.
It has to move cautiously to prevent unrest among the country’s 93 million people, about half of whom live near or below the poverty line. Ahead of the fuel price rises, the government raised pensions, added exemptions for low-income taxpayers and raised allocations to subsidised food programmes.
Egyptians are already smarting from the November decision to abandon currency controls that helped secure a $12 billion IMF loan.
Cairo’s twin policy of subsidy cuts and increased provisions to the poor is seen as a sensible move to boost foreign investment while keeping social unrest at bay.
(Source: Upstream Online)