Middle East

Egypt raises fuel and electricity costs

Egyptian motorist queue up for petrol in Cairo. 11 March 2013 Image copyright Getty Images
Image caption Egyptian motorists often face long queues at petrol stations because of problems with supply

Egypt has introduced electricity and fuel price increases in a move to cut state subsidies and reduce the budget deficit.

Some fuel tariffs are reported to be increasing by 78% while electricity prices are expected to almost double within five years.

The government currently sells electricity for less than half its production cost.

Power cuts have become increasingly common in Egypt.

Officials say the high cost of subsidies has also led to the neglect of both maintenance and capacity expansion.

In the run-up to the increases, ministers sought to calm fears that the increase in fuel and electricity prices would lead to sharp increases in the cost of food and transportation.

A graduated pricing structure for electricity aims to reduce the burden on the poor.

On Thursday, Egyptian Minister of Supply Khalid Hanafi said he predicted only a "slight increase" in the price of staple goods.

Analysts say Egypt's new government is expected to introduce a range of politically sensitive reforms to subsidies covering fuel, transport, food and agriculture.

The country's economy has been badly hit by more than five years of political unrest.

In the past financial year, the budget deficit was 14% of gross domestic product (GDP) and public debt exceeded 100% of GDP.

Ousted President Mohammed Morsi failed to implement a $4.8bn (£2.8bn) loan from the International Monetary Fund (IMF) which would have unlocked another $12bn in bilateral loans.

His reluctance to sign the deal was partly down to the austerity measures tied to it.

These would have included reducing energy subsidies, cutting the public sector workforce and introducing a sales tax.

A quarter of Egypt's budget is accounted for by the country's 6.5 million public sector workers.

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