Fuel Prices: Economic reform al-Sisi’s way

Lately, fuel prices have dropped dramatically, as the two benchmark crudes (Brent Crude and US Crude) have lost two thirds of their value since the beginning of this year because of the decline of demand as a result of the coronavirus pandemic (COVID -19) under the price war between Russia and Saudi Arabia. In light of those circumstances, it was expected that the Egyptian government would cut fuel prices by about half, but instead of this the government was sufficient with only 3.3 per cent.

A fabricated economic reform 

In the context of the economic reform programme, which led to an increase in the number of poor and vulnerable to poverty to up to 60 per cent of the population, al-Sisi’s regime removed fuel subsidies. Since the removal of subsidies, the government has developed a new mechanism to determine fuel prices through a governmental committee every three months according to the updates of global oil prices and the local US dollar exchange rate.

In conjunction with the drop of oil prices globally and the US dollar price against the Egyptian pound (1 USD = 15.7 EGP), it was hoped that fuel prices would be greatly decreased to compensate some of the misery of the people since the economic reform programme was launched. 

The oil pricing committee was 10 days late announcing the new fuel prices. Then it declared it was reducing petrol 95 from 8.75 to 8.50 EGP/Litre ($0.55 to $0.54) with a 2.8 per cent decline, petrol 92 from 7.75 to 7.50 EGP/Litre ($0.49 to $0.48) with a 3.2 per cent decline, gasoline 80, the lower quality, from 6.50 to 6.25 EGP/Litre ($0.41 to $0.40) with a 3.8 per cent decline.

The government justified this low decrease against global prices saying that: “The declared price equation and the standards of the committee provide that the modification of the price goes up and down at 10 per cent maximum to protect both of the consumers and the general budget.”

The government responded by not reducing prices at the maximum of 10 per cent and being sufficient with just 3.3 per cent, saying that “under the exceptional unprecedented circumstances that the oil market [is in], besides the global and local economic conditions [which are a result of the] coronavirus crisis, in addition to the expectation that the sharp decline in global oil prices wouldn’t continue, we decided to save [money] after the cost decrease to face the expected increase of cost during the upcoming period, to face the increased burdens of fighting the coronavirus.”

This means that the government has decided to tax fuel instead of lowering its price, as had been promised. In other words, the economic reform from the al-Sisi regime’s perspective is a reform that deprives citizens of their right to subsidies besides being deprived from getting goods at international prices.

Widespread anger at the ‘great drop’ in price

The government’s decision was contrary to the expectations of many. On March 18, HC Securities & Investment predicted that the Egyptian government would reduce fuel prices to the maximum limit. HC stated, “We expect that the reduction of Brent Crude at $34 will allow the Egyptian government to reduce the fuel price to its maximum limit of reduction at 10 per cent quarterly,” but this did not happen.

The government decision generated a wave of anger on social media, as many wondered how global oil prices declined over 60 per cent yet Egypt only reduced it 3.3 per cent in order to make financial savings.