beyondbrics

Energy subsidies are the bane of Egyptian budgets, soaking up as much public funds as health and education put together – which is why the government is looking to cut back on energy subsidies in the near future, as Egypt’s finance minister told beyondbrics in an interview.

But you wouldn’t be able to tell by looking at the government’s budget, just adopted for the fiscal year to start in July, which outlines some $12bn still to be spent on supporting the prices of a range of fuels from natural gas for industrial and domestic consumption to the unleaded petrol guzzled up by the swanky SUVs now fashionable among the rich.

“We have a vision [for reducing subsidies] but we don’t publicise it,” said Youssef Boutros Ghali, Egypt’s finance minister, in an interview with the FT . “In the coming months you will see.”

He said that in September the government would roll out a new coupon system to control the consumption of the heavily subsidised butane canisters that are sold to the public at less than a tenth of their real cost. Families would be entitled to a limited number of coupons per year allowing them to buy the canisters, which are intended for use in the mostly poor homes that are not connected to the gas grid.

“The new system will immediately eliminate [abuse by] workshops, brick-making factories and chicken farms,” Mr Ghali said.

Tackling energy subsidies remains a politically risky move in a country where 40 per cent of the population lives below or just above the poverty line. It seems likely that any major restructuring of the system will have to wait until after the presidential election due to be held late next year, and even then it will proceed cautiously and slowly.

The energy subsidy is the largest item on a bigger subsidy bill of around $18bn, which includes support for certain food prices and which accounts for a quarter of the expenditure in the Egypt budget.

But even with this continuing drain on the economy, Mr Ghali says he remains upbeat about the state of Egypt’s finances. At 7.9 per cent, the deficit is half a percentage point below last year’s. He aims to cut it down to 3 per cent by 2014.

Mr Ghali expects economic growth this year to inch up to 6 percent from 5.1 per cent in the fiscal year which will end this month. This, the finance minister argues, confirms there is no longer any need for the stimulus spending.

“The new budget expenditure is less because we eliminated the stimulus, and revenues all have recovered to their pre-crisis level, “ he said . “[Revenues] all are going up to their previous levels, the Suez canal, sales tax, income tax. Revenues will exceed the pre-crisis level by about 5 or 10 percent.”