Egypt in urgent need to push economic reform
CAIRO, Nov. 4 (Xinhua) — Egypt‘s Prime Minister Sherif Ismail said Friday that the state “no longer has the luxury" of being able to postponing urgent economic reforms, a day after the central bank floated the Egyptian pound and the government raised fuel prices.
“Lifting the subsidies was planned over five years, but we have to move forward to improve the economy by taking serious decisions and not only depending on analgesics," Ismail said at a press conference held on the weekend with the cabinet’s economic group ministers.
On Thursday, the Central Bank floated its currency to address a dollar crunch that has threatened to bring some imports to a halt, and to make a final push to secure a 12 billion U.S. dollar International Monetary Fund loan within days.
The bank in a statement said the decision of floating is part of an economic reform program to curb the budget deficit, push local production, boost foreign investments and save funds to improve healthcare and education services.
The Petroleum Ministry also raised the prices of the subsidized fuel by 30-50 percent, being effective on Friday.
Long queues of cars, motorbikes and minibuses lined up in petrol stations across Egypt early Friday to fill up their tanks before the new prices becomes effective.
Describing the decisions as “historic," Egypt’s premier said that the government aims to cut a subsidy bill that currently totals 201 billion Egyptian pounds (14.67 billion U.S. dollars) a year to free up cash for other spending.
“The majority of the budget was spent on the subsidies, leaving only 200 billion pounds (14.59 billion dollars) for health, education and other services," Ismail added.
“The public debt has nearly doubled, so we couldn’t wait any more," he said, defending Thursday’s decisions as “decisions of our fate."
The economic program aims to decrease the budget deficit, which currently stands at 12.2 percent of the GDP, to less than 10 percent, he added.
He pointed out that the program will aim also to increase the taxes and reduce the state subsidies.
Meanwhile, Finance Minister Amr El-Gharhy said on Friday that having two exchange rates on the official and the black markets had hindered direct investment in the country that suffered an ailing economy as Egypt saw two uprisings and topple of two president since 2011.
“Raising the prices of subsidized energy would decrease pressure on the state budget," Gharhy said.
Floating the pound is necessary for Egypt to not be reliant on aid, he added.
To protect the poor from the rise in prices, subsidies bill for basic commodity will raise to 49 billion pounds (3.57 billion dollars) from 44 billion pounds (3.21 billion dollars) after a recent decision to increase subsidies for individuals from 18 (1.3 pounds) to 21 pounds (1.53 dollars), the finance minister said.
Floating the pound had long been among a list of measures demanded by investors and international creditors, but had been avoided in the fear that rising prices could provoke popular anger from the poor class.
Egypt’s Oil Minister Tariq al-Molla said on Friday that the fuel price hikes will save 22 billion Egyptian pounds (1.60 billion dollars.)
“Egypt currently imports one third of petroleum product needs," al-Molla added. He expected Egypt will reach gas self sufficiency by 2020 due to recent discoveries.
Egypt’s pound plunged in value on Thursday, with the dollar trading on official markets at between 13.5 and 16 Egyptian pounds, up sharply from the previous rate of 8.8.
Egypt’s stock market on Thursday gained 11 billion pounds (80 million dollars.)
The Central Bank’s governor said the bank targets to increase the cash reserve from 19.59 billion dollars to 25 billion dollars by the end of 2016.
The head of the IMF commission to Egypt said the flexible currency rate system that has declared by the Central Bank will help improve Egypt’s competitiveness in the world markets and will also boost the exports and tourism, and lure foreign investments.