The President of Egypt warns that the country might rethink the IMF loan deal due to challenges in the region
Egyptian President Abdel Fattah El-Sisi warned on Sunday that Egypt might need to rethink its $8 billion deal with the International Monetary Fund (IMF) if global organizations do not consider the challenges faced by the region.
Regional Challenges
In March, Egypt received an $8 billion financial package from the IMF. This deal requires Egypt to cut subsidies on fuel, electricity, and other goods, and to let its currency move freely. These changes have made many people unhappy.
President El-Sisi said at a recent health and development congress that the country is facing very tough conditions both regionally and globally. He emphasized that they need to be careful with the program they agreed on with the IMF. If these changes upset the public and people can’t handle it, they may need to rethink their approach.
His comments came after Egypt raised prices for some fuel products for the third time this year, leading to public complaints.
The president also mentioned that Egypt has lost between $6 billion and $7 billion in revenue over the last seven to ten months due to regional issues, a problem that might continue for at least another year.
Since the start of the Gaza war, Cairo has been worried about its impact on Egypt, including possible refugee inflows and economic troubles. Although a major regional war hasn’t happened yet, recent events in Lebanon have raised fears that the conflict could be a long-term threat to the economy.
An IMF report from April showed that countries in the Middle East and Central Asia saw a drop of about 2% in their GDP per person after one year of severe conflict, with that decline worsening to around 10% after ten years. This situation leads to slower economic growth, higher inflation, and less spending, investment, exports, and tax revenue.
Analysts warned that if the war spreads, it could hurt investor confidence and affect many sectors, including tourism, retail, real estate, oil, precious metals, and renewable energy. However, richer Gulf oil countries are in a better position to cope with these challenges than their less stable neighbors.
Additionally, Yemen’s Houthi attacks on ships in the Red Sea have caused shipping traffic to avoid Egypt’s Suez Canal. This has led to a major drop in revenue, which fell to $870 million in the second quarter, down from $2.54 billion during the same time last year.
Fuel Price Increase
On Friday, Egypt’s fuel pricing committee raised the prices of 80 octane and 92 octane gasoline by about $0.031 (EGP 1.5) each. The new prices are $0.28 (EGP 13.75) per liter for 80 octane and $0.31 (EGP 15.25) per liter for 92 octane.
The price of 95 octane gasoline went up by $0.041 (EGP 2), bringing it to $0.35 (EGP 17) per liter.
Diesel prices increased from $0.24 (EGP 11.50) to $0.28 (EGP 13.50) per liter. The price of mazut (a type of fuel) went from $174.8 (EGP 8,500) to $195.4 (EGP 9,500) per ton, and automotive gas rose from $0.12 (EGP 6.5) to $0.14 (EGP 7).
Prime Minister Mostafa Madbouly mentioned in July that fuel prices would keep rising gradually until the end of 2025 because the government can no longer afford the cost of fuel subsidies due to increasing demand.
Hyperinflation
At the end of July, the Egyptian government increased fuel prices by up to 15%. This was followed by higher prices for train and subway tickets, which led to rising inflation rates.
In August, inflation in Egypt increased again after five months of decline, reaching 25.6%. It went up to 26.4% in September, according to the Central Agency for Public Mobilization and Statistics.
Recently, Egypt has started to reduce subsidies on several important services and goods. In August, Prime Minister Madbouly mentioned that the country might move from subsidizing basic items to giving direct cash help to its poorest citizens, starting with the next fiscal year from July to June.
In June, the government raised the price of subsidized bread by 300%.
Despite these changes, Egypt still provides subsidies for essential goods to over half of its population. More than 60 million people receive reduced-price items like pasta, vegetable oils, and sugar from state-run stores, while about 10 million people benefit from subsidized bread.
The government also provides fuel subsidies but plans to gradually remove this support, aiming for a complete phase-out by December 2025.
What to Watch For
Egyptian officials are in Washington this week for the annual meetings of the IMF and World Bank. They are expected to talk with representatives from these international organizations.
Ratings
On October 19, S&P Global Ratings confirmed Egypt’s credit ratings of B-/B and gave them a positive outlook. They noted that Egypt has been able to make important changes since it changed its exchange rate policy in March.
Published: 21st October 2024
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Egypt has increased gasoline and diesel prices for the third time this year because the cost of subsidies is becoming too high
