The International Monetary Fund (IMF) said in its staff report after the third review of the Egyptian economy that the automatic fuel price indexation mechanism for most fuel products will be implemented by the end of December 2018.
The IMF noted on Thursday that the mechanism will adjust fuel prices to changes in global oil prices, the exchange rate, and the share of imported fuel in domestic consumption, adding that it is designed to maintain the cost-recovery ratios for fuel products.
The mechanism will safeguard the budget from unexpected changes in the exchange rate and global oil prices. In addition, electricity subsidies are projected to decline from 0.7% of GDP in 2017/18 to 0.3% in 2018/19, and to be fully eliminated by 2020/21, mentioned the report.
The fuel subsidy bill is expected to decline to 1.8% of GDP in 2018/19, despite the significant increase in world oil prices over the past year, added the report.
The report noted that the fuel subsidy bill has decreased from 3.3% of GDP in 2016/17 to a projected 2.7% of GDP in 2017/18, adding, “Despite significant increases since the start of the programme, prices for fuel products in Egypt remain among the lowest in the world, which benefits the well-off disproportionately rather than the poor.”
In June 2018, the authorities increased fuel prices by another 44% on average, which raised the pre-tax price-to-cost ratios to about 73% for gasoline, diesel, kerosene, and fuel oil, said the report, noting that increases are planned to achieve the objective of full cost recovery by the end of fiscal year 2018/19.
On 29 June, the IMF completed the third review of Egypt’s economic reform programme supported by an arrangement under the Extended Fund Facility (EFF).
The completion of the review allowed the authorities to draw the equivalent of SDR 1,432.76m ($2.02 bn), bringing total purchases to SDR 5,731.05m ($8.06 bn).