The Egyptian government implemented a fuel price hike on Friday, further exacerbating inflationary pressures on an already struggling population.
The announcement of the new prices was made through the government’s official Facebook page and took effect on Friday morning. The price of diesel, which is the primary fuel used for transportation of people and goods, increased from 8.5 Egyptian pounds to 10 pounds per liter.
Egypt, being a net energy importer, also raised the price of 95 octane gasoline from 12.5 Egyptian pounds to 13.5 Egyptian pounds per liter.
The government attributed the price increases to the rising cost of energy imports due to the depreciation of the local currency and the global surge in energy prices following the Red Sea unrest.
On March 6, Egypt’s central bank announced the adoption of a market-based exchange rate, after nearly a year of defending an overvalued local currency. However, this unintentionally led to the revival of a parallel market. The official exchange rate of the Egyptian pound against the US dollar initially rose from nearly 31 to 51, before appreciating by almost 10% in recent weeks as the banking sector started receiving significant foreign currency inflows, as reported by the government.
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Additionally, the government increased the cost of widely used butane gas cylinders from 75 Egyptian pounds to 100 pounds. Last year, a cabinet member stated that Egyptians consumed approximately 800,000 butane bottles per day, with 50% of them being imported.
The rise in fuel prices is expected to further impact consumer purchasing power and inflation rates. In the previous month, the annual urban inflation rate surged from 29.8% in January to 35.7%. The cost of food alone witnessed an increase of nearly 51% in February compared to the previous year.
These price increases align with the conditions set by the International Monetary Fund (IMF) for the disbursement of new loans to Egypt. Earlier this month, Egypt reached an agreement with the IMF to expand its bailout package from $3 billion to $8 billion following extensive negotiations.
The IMF has consistently urged the government to devalue the currency and implement monetary and fiscal tightening measures, particularly by reducing public subsidies.
Egypt’s economy has faced significant challenges, including years of government austerity, the impact of the COVID-19 pandemic, repercussions from Russia’s invasion of Ukraine, and most recently, the conflict between Israel and Hamas in Gaza. Furthermore, Houthi attacks on shipping routes in the Red Sea have reduced revenues from the Suez Canal, which is a crucial source of foreign exchange for Egypt. These attacks have forced vessels to divert away from the canal and navigate around the tip of Africa.
Last month, the United Arab Emirates provided support to Egypt by announcing a $35 billion investment project along the Mediterranean coast, offering a lifeline to the country’s economy.
