July 7 (Bloomberg) -- Egypt’s president defended his decision to raise energy prices as the only way to save the nation from “drowning in debt,” as Egyptians braced for a jump in the cost of other consumer goods.
The increases of as much as 78 percent in fuel prices, announced July 4, were an “important step” that has been delayed for 50 years, Abdel-Fattah El-Sisi told the heads of national news outlets, according to the state-run Middle East News Agency.
Under ousted presidents Hosni Mubarak and Mohamed Mursi, Egyptian governments steered clear of major changes to subsidies for energy and other goods, with public opposition surfacing when such measures were even discussed. For El-Sisi, the former army chief who ousted Mursi last year and was elected to the presidency in May in a vote boycotted by many groups, the price increase may be an early test of support.
A smattering of protests broke out after the announcement. Dozens of drivers and passengers blocked the road in the middle- income Cairo neighborhood of Shoubra el-Kheima, the state-run Al-Ahram newspaper reported.
“How is it that social justice always seems to mean that we, the poor, get short-changed,” taxi driver Mohamed Farid said, though he saw no remedy. “What are we going to do?” he asked. “Keep overthrowing governments when they do something we don’t like?”
El-Sisi has vowed to repair an economy growing at the slowest pace in two decades, and called on Egyptians to make sacrifices, saying he’ll accept only half his own pay. The government spends about 25 percent of the budget on subsidies, and is seeking to narrow a deficit that has exceeded 10 percent of economic output. The inflation rate was 8.2 percent in May.
Yields on nine-month government debt sold at an auction yesterday rose 16 basis points to 11.1 percent. The benchmark stock index, which has gained more than 60 percent since El-Sisi led the army takeover, added 0.8 percent.
Prime Minister Ibrahim Mahlab told a press conference on July 5 that Egypt spent 687 billion pounds ($96 billion) on energy subsidies over the past decade, and will save 51 billion pounds from the new measures. Officials say that services such as health and education will benefit.
Under the new pricing, 95-octane gasoline increased to 6.25 pounds a liter from 5.85 pounds, while 80-octane, which many drivers favor, rose 78 percent to 1.60 pounds. Diesel, used in trucks and minibuses, was raised 64 percent to 1.80 pounds, according to the state-run Al-Ahram newspaper.
El-Sisi also raised taxes on alcohol and cigarettes, according to MENA.
The price increases “will probably have a negative impact on consumption in the short term,” Mohamed Abu Basha, a Cairo- based economist at EFG-Hermes Holdings SAE, said by phone. He said the government is “paving the way for more fiscal sustainability and for putting the economy on a path toward recovery.”
While a major backlash isn’t likely, “the government still doesn’t have the required social safety net in place, which is of concern,” Abu Basha said.
Supporters of Mursi, who denounce his removal as a coup, said in an e-mailed statement that the price increases are a “deliberate collective punishment of the people.” El-Sisi told the newspaper chiefs that a “terrorist group” was using the new measures to disrupt efforts to mend the economy, MENA said. The government has declared Mursi’s Muslim Brotherhood a terrorist organization.
The fuel measures came a day after an increase in electricity prices, and are set to trigger secondary rises in other goods. The head of the Cairo Chamber of Commerce’s poultry division said chicken prices will rise by 25 percent within days because of added transportation costs, Al-Ahram reported. Mini- bus and taxi fares were raised by about 13 percent, according to state media.
Cairo commuters were caught by surprise. Mohamed Abdel- Kader, who earns a monthly salary of 790 pounds, paid 3 pounds instead of 2.20 pounds to go to work in a minibus.
“I have to cut one of my family’s small expenditures,” he said. “What do you suggest? Cut food spending and leave my kids to die of hunger, or get them out of schools to save the money? Really, what am I going to do?”
--With assistance from Abdel Latif Wahba and Mariam Fam in Cairo and Mahmoud Habboush in Abu Dhabi.