Does fuel subsidy turn into a new crisis in Egypt?

At a time when oil prices have recorded significant increases since the start of the Russian war in Ukraine, the Egyptians and the government are expected to face new pressures during the coming period.

The financial statement of the Egyptian draft budget revealed an increase in petroleum subsidies during the next fiscal year by 52.6%, with an increase of about 9.68 billion pounds, on an annual basis.

The statement indicated that the estimates of petroleum subsidies during the next fiscal year amounted to 28.09 billion pounds, compared to 18.41 billion pounds in the current fiscal year’s budget.

The Egyptian Ministry of Finance attributed the increase in petroleum subsidies in the next fiscal year’s budget to the rise in Brent crude prices and the change in the dollar’s exchange rate against the pound.

According to the financial statement, the support included in the budget represents the value of what the state bears as a result of selling some petroleum products at prices lower than the cost of their availability to the local market, whether through local production or importing some of the crude, such as importing crude, some petroleum products, butane tubes and diesel for bakeries.

The Ministry of Finance will set oil prices at $80 a barrel in the next fiscal year 2022-2023 budget, and this figure is much higher than last year, but at the same time, it is lower than the expectations of some analysts.

In the budget for the current fiscal year 2021-2022, the Egyptian government assumed the average price of Brent crude at $60 a barrel, but Egypt is currently paying nearly double this price due to the supply crisis caused by the war in Ukraine.

Brent crude is currently trading at above $112 a barrel, an increase of 45% from the beginning of the year, while some analysts expect crude to remain above $100 a barrel for the remainder of this year as the indirect effects of the war in Ukraine continue to burden the pressured market. Indeed.

Because of the continuous rise in energy prices globally, the Egyptian government has also raised the value of the petroleum subsidy bill, as the government is working to increase its spending on petroleum subsidies by more than 50% to EGP 28 billion, from EGP 18.4 billion in the current fiscal year’s budget.