Wednesday, September 28, 2016

Egypt Announces Progress on Cuts to Costly Fuel Subsidies - FORBES

SEP 28, 2016, Christopher Coats, CONTRIBUTOR

Two years after launching a concerted effort to sharply reduce subsidy programs that had proven unsustainable to the country’s government, Egypt has announced significant progress in the reduction effort, reporting a 28.7% drop in spending during the 2015-2016 fiscal year.

According to a Reuters report, the country’s Petroleum Minister Tarek El Molla said that the reported reduction represented a larger decline than previously announced.

Coupled with myriad other financial challenges facing the country, energy subsidies have proven especially difficult to manage or reduce in recent years, creating an enormous challenge for the government’s attempts to draw down its daunting debt.



According to Sherif El Diwany, Executive Director of the Egyptian Center for Economic Studies in Cairo, government subsidies made up about one-third of the government’s budget in 2014 and 75% of that amount is set aside for energy sector subsidies.

However, the government’s recent efforts have shown signs of success, with the most recent decline exceeding previous expectations. According to the report, energy subsidies had declined thanks in part to lower energy prices.

The country has also been assisted by a series of recent hydrocarbon discoveries, allowing some optimism about Egypt’s capability to address domestic demand requirements.

Egypt has a long history of energy challenges, though they have grown especially daunting over the last four years. With the collapse of the long-standing government of Hosni Mubarak, the country of over 80 million found itself economically isolated, which served to reduce its foreign reserves and with it, the ability to keep up payments to oil and gas importers.

However, more recently, exploration efforts by international firms like Italy’s Eni have opened the door to the possibility of significant strides in domestic production efforts. According to the Reuters report, Egypt has made 38 new petroleum discoveries during the 2015-2016 fiscal year, with 24 for crude oil and 14 for natural gas.

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