Roundtable Discussions

Fuel Subsidies in Egypt: A Strategy for Reform

Date : 2/1/2012

Speakers : Alaa Arafa, Magda Kandil (ECES), Hany Dahy (EGPC), Tamer Abou Bakr (GENCO)

Views have increasingly converged that fuel subsidies in Egypt are inefficient, inequitable and costly. Estimated at LE 95.5 billion, fuel subsidies in 2011/12 account for 71 percent of total subsidies, 19 percent of total expenditures and 6 percent of GDP. These subsidies benefit mostly energy-intensive industries as well as the richer quantiles who consume more petroleum products. With an overall fiscal deficit of 9.8 percent of GDP in 2010/11 and a projected wider deficit for 2011/12, reforming the current system of fuel subsidies could help the government create the much-needed fiscal space and provide more social support to the most vulnerable groups. Well targeted reform will discourage wasteful fuel consumption and increase Egypt’s earnings of foreign currency, capitalizing on a larger scope for oil and gas exports. More importantly, some of the budgetary savings from reducing subsidies could be redirected to programs that better help the poor, including education, healthcare services and cash transfers. Further, reducing wasteful energy consumption could also result in other positive externalities such as protecting the environment and achieving intergenerational equity in light of limited reserves of energy in Egypt.