While Nigeria is still contemplating the removal of a costly subsidy on oil amidst a worrisome fiscal imbalance, Egypt has announced a 40 percent cut in energy subsidy to ease the burden on government earning.
Egyptian lawmakers on Monday approved the budget which slashed government spending on electricity and oil as part of austerity measures to ensure fiscal consolidation in line with a $12 billion, three-year International Monetary Fund (IMF) loan programme which began in 2016.
Fuel subsidy expenses would be cut to £53bn (approximately 40 percent), while electricity subsidies would be slashed by 75 percent to£4bn. The savings will be channelled towards increasing public investment.
The government also revealed that it would put a stop to electricity subsidies by the end of the 2021-2022 fiscal year, which points to June of the latter year given that Egypt fiscal year is run from July through June.
The Egyptian economy is going through tough reforms which started since a slump that followed the ousting of former president Hosni Mubarak in 2011.
In 2016, The North African nation devalued its pound by half as part of conditions of its $12 billion loan from the IMF and saw an increase in foreign investment flow into the nation.
The latest step by Egypt will see electricity cost about 26 percent more from July and is expected to take a toll on the masses.
“It will be challenging for middle-income and lower-income groups,” Radwa El-Swaify, head of research at Pharos, told Reuters. “However, the government has implemented different social packages … trying to alleviate some of the negative impact on the lower income groups.”
The Egyptian government would be spending 1.6 trillion Egyptian pounds ($95.8 billion) in its 2019-20 fiscal year, 10 percent more than it has spent in the current fiscal year.
