Egypt hikes prices with Government eyeing bigger IMF loan
Egyptian officials kicked off the new year by raising prices for a range of key services, heaping new pressure on consumers as the government looks to raise revenue and potentially boost the size of its rescue package from the International Monetary Fund.
Electricity prices for households were hiked by between 16% and 26%, depending on the usage bracket, according to the power regulator. Industries also saw electricity prices rise around 20%.
Charges will go up for metro and rail tickets as well, while the state-run Telecom Egypt is raising prices for internet plans by over 30%, according to the state-run Ahram Online news website. Most of the new tariffs are effective immediately or will go into force within days.
The decision follows barely a month after a presidential election in which Abdel-Fattah El-Sisi won a third term, showing authorities are now willing to weather some backlash as they move ahead with measures that will inflict more economic pain on consumers.
The nation’s 105 million people have already been grappling with inflation that had hit a record high of over 35% last year. Key commodities such as sugar have nearly doubled in price, prompting authorities to enact measures to avert what they say is price gouging by traders or distributors.
Under Strain
Officials said pressure on the budget warranted the latest increases, with Prime Minister Mostafa Madbouly explaining that the government had to act to try to trim the deficit after what he described as a spike in subsidy spending.
A kilowatt of electricity is costing the state 1.77 pounds, a figure that’s more than the price for the highest consumption bracket even after the latest hike, he said in a televised news conference.
Among the government’s plans is the goal of cutting the ratio of debt to gross domestic product to 80% or below within the next five years, from the current level of around 95%, Madbouly said, adding that it’s also targeting bringing inflation down to 10% starting 2025.
“The citizen must be completely aware that what we’re doing today, when we are partially raising the price of some services or commodities, is to lighten some of the fiscal burden on the state,” Madbouly said, adding that if these issues aren’t addressed in the short term, they “could, God forbid, explode in our face.”
Higher electricity tariffs are set to add 0.7 percentage point to monthly inflation in January, according to Cairo-based Naeem Brokerage, with an additional indirect impact the following month.
The price hikes spotlight the predicament Egypt faces after the exodus of hot money following the Russian invasion of Ukraine in 2022. That outflow resulted in the nation’s worst dollar crunch in decades and had some analysts raising the possibility of a debt default or restructuring.
Many investors and economists expect authorities to move forward in the first quarter with what would be the fourth devaluation of the pound since early 2022, amid earlier calls by the IMF for Egypt to adopt a more flexible exchange-rate regime.
The government is now trying to boost the size of its $3 billion IMF loan, the review of which has been repeatedly delayed.
The service tariff increases also reflect the government’s push to move ahead with a reform program aimed at reviving the economy and overcoming a crippling foreign currency crunch. That move includes the sale of state-held assets, though progress on that has also been slow.
CI Capital said “the hike is favorable” for the budget after a delay from July 2023 came at a fiscal cost of 12 billion pounds ($389 million).
Alongside the tariff hikes, the government is also battling to curb what many see as hoarding by some sellers or distributors of key staples like sugar, whose price shot up late last year from 27 pounds ($0.87) per kilogram to 50 pounds. Officials have in part blamed the dollar squeeze for the price increase.
Authorities have identified several key commodities as strategic for the economy and set rules that aim to make it more difficult for retailers to inflate their prices, according to the cabinet and a decree published in the Official Gazette.
But the trickle-down effect of the sugar price increase is palpable on the streets of Egyptian cities.
Ayad, who owns a bakery in Cairo that makes cakes and asked that only his first name be used, said that as his costs rose, he was forced to pass them on to the consumer. As a result, a medium-sized cake that had sold for 145 pounds shot up to 345 pounds.
“We now have families who, instead of buying a cake, buy pastries by the piece,” Ayad said.
