Egypt plans new deficit-reduction steps

November 12, 2012 - 7:02:21 am

CAIRO: Egypt’s government has proposed tax changes and reducing energy subsidies to cut a budget deficit running at about 11 percent of gross domestic product, Egyptian newspapers reported. 

The austerity steps, certain to be unpopular, are part of an economic programme drawn up in part to help convince the International Monetary Fund that Egypt is serious about economic reform. 

An IMF team is in Cairo to negotiate a $4.8bn finance package for Egypt. Talks are scheduled to end on November 14. 

Economists say the IMF is unlikely to sign a loan agreement unless at least some austerity measures are in place. The deal is seen as a vital step to rebuild the confidence of foreign and local investors, and encourage more potential foreign donors.

Finance Minister Mumtaz Al Said said Egypt could save 35bn Egyptian pounds ($5.7bn) a year with planned energy subsidy reforms, the daily Al Masry Al Youm reported. Egypt in September revised its budget deficit for the fiscal year ending June 30, 2012, to 170bn Egyptian pounds ($27.8bn) from a previously projected 134bn pounds. 

New measures include the total elimination of the subsidy on 95 octane gasoline, a step that will be officially announced this week, and raising the price of natural gas piped to homes, which will come into effect next month, the minister was quoted as saying. 

The natural gas price increase would be “tiny”, he added. The minister was not immediately available to comment. Consumers now buy gas in their homes at a fraction of international prices, based on a sliding scale related to usage. Drivers pay 95-octane fuel at 2.75 pounds a litre.

The government has delayed a programme to use smart cards to distribute canisters of cooking gas, or butagas, by several months to ensure the system works properly, the minister said according to the state-run daily Al Ahram. The newspaper sa id the scheme would start by June 30 next year. 

The government would not touch the price of subsidised diesel, Al Ahram quoted Oil Minister Osama Kamal as saying.  The newspaper also reported, without citing a source, that the government had drafted a law to raise the sales tax on both commodities and services to 11 percent from 10 percent. A tax on telephone services would be 15 percent, while an extra 0.01 pound per minute would be levied for telephone use and a tax on text messages would be increased, Al Ahram said.