Egypt: Guiding Reform of Energy Subsidies Long-Term

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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“…In this context, the IMF has estimated that the energy subsidy in the Middle East region stood at $237 billion in 2011, which represented 48% of the total subsidy in the world, 8.6% of the gross domestic product (GDP) and 22% of government revenues 3 . These figures are considerably high compared to the world averages, where the subsidy to the GDP and revenue ratios amount to 0.7% and 2.1% respectively, and are particularly acute for oil exporting countries (Griffin et al, 2016).…”

Phasing out energy subsidies as part of Egypt’s economic reform program: Impacts and policy implications

“…In Egypt, several studies estimated the potential impact of energy subsidy reform. Griffin, Laursen, and Robertson (2016) and Banerjee et al (2017) used dynamic computable general equilibrium (DCGE) models and found that the impact of the energy subsidy cut in July 2014 should lead to only a modest decline in real household consumption and only a slight increase in poverty in the short-term, while resulting in sizeable structural change in the economy and increase in economic growth in the longer term. Since these two studies for Egypt were conducted, the GOE has scaled up its economic reform agenda significantly by floating the exchange rate and by further cutting energy subsidies.…”

“…Applying a price elasticity of electricity (gasoline) consumption equal to -0.33 (-0.21) would lead to an average total direct effect of -1.92 percent, with the bottom quintile experiencing a loss of -2.43 percent. and a previous energy-focused social accounting matrix (SAM) 2010/11 by Griffin et al (2016). Key changes include:…”

Reforming Egypt’s Fossil Fuel Subsidies in the Context of a Changing Social Contract

“…Energy subsidies were one of the main causes of this bleak picture. Expenditure on fuel subsidies had grown with a compound annual growth rate of 26 per cent between 2002 and 2013 (Clarke 2014), amounting to about USD 21 billion, which represented 8.5 per cent of GDP (Griffin et al 2016: 2) and 20 per cent of public expenditure (El-Katiri and Fattouh 2015). The July 2014 reforms were steep price increases affecting various consumer groups and nearly all fuels and energy products, with LPG being the one notable exception.…”

“…Also, wealthy Egyptians who favoured stability in 2014 are increasingly discontent as they feel the grip of Sisi's policies that generally favour the poor (Walsh 2016). As far as the military is concerned, the 2014 reforms caused a shift in production and investment to the construction sector (Griffin et al 2016). However, not all construction projects have yielded results as fast as hoped.…”