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Decline of international oil prices to decrease Egypt’s subsidy bill by EGP 25bn: Dcode study - Daily News Egypt

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Decline of international oil prices to decrease Egypt’s subsidy bill by EGP 25bn: Dcode study

Negative implications of BOP would lead CBE to adopt more flexible stance toward EGP/USD rate


Petroleum minister Abdallah Ghorab emphasised the need to readjust subsidy policies in order to reach those in who need it most (AFP Photo)
Egypt’s subsidy bill at the current oil prices per barrel would decline by EGP 25bn
(AFP Photo)

Egypt’s subsidy bill at the current oil prices per barrel would decline by EGP 25bn, a study released Sunday by Dcode economic and financial consulting firm said.

This would represent almost 0.5% of the expected GDP for the next fiscal year (FY).

This would create more fiscal space that could be utilised for financing infrastructure projects, the study added.

The decline of international oil prices will have a positive short-term impact on rhw FY 2014/2015 real economy, fiscal accounts and price levels, the study stressed.

The study noted that net oil trade balance will improve by $0.3bn to $0.4bn in the current fiscal year. It also added that remittance receipts from the Gulf could be affected negatively by almost 4%, to account for a reduction of $0.6bn to $0.7bn.

Russian tourism will also be negatively affected due to the depreciation of the rouble, it said.

Meanwhile, lowering oil prices would reduce shipping and transportation costs for imported goods, which consequently could lead to lower domestic inflation.

“On the negative side, the balance of payments (BOP) expected negative implications could add more pressure on the Central Bank of Egypt to adopt a more flexible stance toward the EGP/USD rate and allow for more devaluation, which could lead to a higher imported inflation,” the study pointed out.

However, Qalaa Holdings had different expectations as it forecast, in a 21 December statement, that the oil price decline would lead to a decline in the budget deficit and the balance of payments in Egypt by at least $5.5bn.

Qalaa further expected mazut to become available after the decline in oil prices, enabling the Egyptian government to import more mazut and liquefied natural gas (LNG).

Qalaa also confirmed that that aid from Gulf states could be affected by the decline in oil prices over time.

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