Egypt Raises Fuel Prices as Government Pushes Painful Overhaul

CAIRO (Capital Markets in Africa) – Egypt raised fuel prices by as much as 55 percent, as the government pushes ahead with reforms to cut the budget deficit and revive the economy that are also putting pressure on households.

The price for a liter of 80 octane gasoline or diesel rose to 3.65 pounds (20 cents) from 2.35 pounds, the cabinet said in a statement on Thursday, while 92 octane fuel increased to 5 pounds from 3.5 pounds per liter. Butane canisters, a staple in households for cooking, doubled to 30 pounds.

The move, while expected ahead of the start of the new fiscal year that begins on July 1, comes at a delicate time for a government trying to balance the books but wary of unrest among Egypt’s 93-million population — around half of whom live on or near the poverty line. The November decision to float the Egyptian pound caused inflation to soar above 30 percent, though it also helped to secure a $12 billion International Monetary Fund loan seen as vital for boosting investor confidence.

“The government is getting all the painful measures done” this fiscal year, said Reham El Desoki, senior economist at Dubai-based Arqaam Capital. “That’s probably the government’s strategy. Now, the worst is probably behind us,” she said, adding that the coming fiscal year would be a “fresh start, with decreasing inflation and interest rates.”

President Abdel-Fattah El-Sisi has said that the reforms, while painful, are necessary and that the country can’t afford to hold off any longer. Prime Minister Sherif Ismail said on Thursday that the government would seek to shield lower-income families from the impact of the higher fuel prices.

“The move was already factored in households’ and businesses’ expectations, which may soften its psychological impact,” El Desoki said. Even so, the inflation rate could rebound to the mid-30s in the short term before dropping again in November, she said.

Egypt’s annual inflation rate eased slightly to 29.7 percent in May, while the monthly price increase held steady at 1.7 percent.

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