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The Egyptian government has taken the long-awaited painful but necessary decision of raising domestic energy prices.
Energy subsidies in the 2014-15 budget starting on 1 July are estimated at E£127bn ($17.7bn), or 16% of the budget – E£100bn ($14.0bn) for petroleum products and E£27.4bn ($3.8bn) for electricity generation. To rationalize its energy consumption, Egypt has embarked on a number of reforms, which include gradual product price increases; efficiency in energy usage; introduction of smart cards for the distribution of gasoline and diesel; and prevention of product smuggling.
The price hikes, which will raise the cost of many goods, as well as transport, were greeted with anger on the street, but not in massive eruptions of violence (see p2). The full impact of higher energy prices on inflation has not yet fed into the economy as a whole. A former assistant to the IMF Executive Director Fakhri al-Faki expressed his concern to a local paper that the government may not be able to control overall prices in the economy after the cut in energy subsidies and increasing inflationary pressures – a development which could exacerbate the suffering of Egyptians under the poverty line, reportedly over 25% of the 82mn population.
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