Ahead of the IMF loan agreement, Egypt is planning to cut off fuel subsidies within three years and is aiming to increase fuel prices to 65 % of their actual cost during the 2016/17 fiscal year, according to two government sources, reported Reuters.
Egypt has been trying to cut spending on subsidies because they shrink its state budget especially as the government struggles to revive its economy.
In fact, “Egypt has reached a staff level agreement with the International Monetary Fund for a $12 billion three-year loan program which is subject to final approval by the IMF executive committee, “ according to Reuters report.
The IMF has asked for several reforms including cuts in subsidies, the introduction of value-added tax (VAT) and a shift to a more flexible exchange rate system.
One of the officials said,” What was agreed lately with the IMF delegation in Egypt is cancelling fuel subsidies within three years.”
The Gasoline in the 92-octane category is sold at 58% of its cost in Egypt while the 80-octane category is sold at 57% of its cost and for diesel, it is about 53%.
In July 2014 as part of a five-year plan, Egypt lowered its spending on fuel subsidies, which raised the prices of petrol and diesel by up to 78 %, but the plan was not followed through in 2015/16.
In April, government officials said there was a new plan to reduce spending on fuel subsidies by nearly 43% in the 2016/17 budget.
In 2015/16, the cost of petroleum subsidies fell to 55 billion Egyptian pounds ($6.2 billion) from 71.5 billion pounds last year.
Egypt targets to lower subsidies for petroleum products to about 35 billion pounds this financial year.
Al-Sisi has previously warned Egyptians that strict economic measures and austerity policies would be implemented to reduce the country’s budget deficit.