—It is the fifth and final hike in petrol prices as Egypt prepares to receive the last $2bn tranche from IMF
CAIRO: Egypt increased fuel prices on Friday in its latest round of subsidy cuts under a reform package agreed with the International Monetary Fund, authorities said.
The latest cut in fuel subsidies is a condition of a $12 billion loan secured from the IMF in November 2016.
It is the fifth and final hike in petrol prices as Egypt prepares to receive the last $2 billion tranche from the monetary body.
Since President Abdel Fattah al-Sisi took power in 2014, his government has enforced a strict austerity programme designed to jump-start the economy.
The economy took a battering in the immediate aftermath of the revolution that ousted long-time autocrat Hosni Mubarak in 2011.
Direct foreign investment has grown to record levels but the country’s debt and essential household costs have ballooned.
In May, electricity bills were raised by around 15pc.
Egyptians have had to contend with belt-tightening measures that have seen living costs soar since the pound was devalued in November 2016.
The Washington-based body commended Cairo in April for its “substantial progress”.
It’s irrational to believe that enforcement of a strict austerity program can jumpstart Egyptian economy, or any economy for that matter. Especially with fuel pump prices being hiked five times and electricity bills jacked up by 15%, the inflationary impact would curb aggregate demand, dampening new investment and growth. Cost inflation would also render the export industries uncompetitive.
It is also wrong to assume that FDI levels rising to record levels is necessarily a good thing. If FDI is being channelized in financial sector seeking higher rate of return then the conversely the cost of borrowing will escalate and productive sectors like industry, agriculture and tourism services will be hard hit.
When things go bad with the 2016 bailout, the IMF will come out with yet another bailout with even stricter conditionalities. The vicious cycle of exploitation will thus continue until Egypt crumbles in dust of default at the foot of the Sphinx.