Egypt’s government has slashed fuel subsidies as part of an economic overhaul backed by the International Monetary Fund, to ease pressure on public economy.
The decision which takes effect on July 5, however, will affect consumers already struggling with double-digit inflation as it raises the price of diesel, used by trucks, buses and other motorists by 22.7%.
According to a statement from the oil ministry, the price of higher-grade 95 and 92 octane gasoline rose by 16% and 18.5% while Lower-grade 80 octane gasoline went up by 22.7%.
Aljazeera reports that the hikes are the latest measures taken by the Arab world’s most populous nation to curb government spending and cut the deficit.
Egypt devalued the pound in 2016. The currency halved in value against the U.S. dollar, driving inflation to levels well above 30% before the pace of price increases began to cool.
The central bank has cut the benchmark interest rate only once in the past year and is unlikely to act again until it can judge the inflationary impact of the latest fuel-price hikes.
Subsidies are the life-blood of many Egyptians but consumes almost one-third of the government’s budget. Any effort to reform the food subsidy system is fraught with political dangers in a country where tens of millions rely on state-subsidized bread, so authorities have focused instead on electricity and fuel.
The government had announced last month that electricity prices would rise by almost 15% in the fiscal year that begins July 1, saving almost $1 billion. The next step in the fuel subsidy reform plan is an indexation mechanism that links local fuel prices to international ones. Subsidies on the highest-grade fuel, 95 octane, has already been lifted, with the gasoline now sold at market value.