Gov’t is feeling upbeat about economic recovery next year: The economy is set to overcome the ongoing crisis and be back on track in 2025, after a series of global events — from Covid-19 and the war in Ukraine to global inflation — threw earlier economic progress off track, Prime Minister Moustafa Madbouly said during a presser yesterday (watch, runtime: 33:45).

The country’s subsidy bill has more than tripled over the last two years: The government footed a subsidy bill of EGP 342 bn in 2023, compared to under EGP 100 bn in 2021, Madbouly said, explaining that bigger subsidies coupled with higher interest rates added to the country’s debt burden because subsidies get financed via debt. Here’s a breakdown of last year’s subsidy costs according to Madbouly:

  • Bread: EGP 91 bn
  • Electricity: EGP 90 bn
  • Diesel: EGP 90 bn
  • Food rations: EGP 36 bn
  • Butane cylinders: EGP 35 bn

That’s not all: The government also coughs up EGP 22 bn a year to subsidize medications doled out to patients at public hospitals. Other subsidies include fertilizers, water, and baby formulas, Madbouly added without providing further details.

Electricity subsidies going away? The government now plans to phase out almost all electricity subsidies over the next five years, Madbouly said. The electricity price hikes thatwent into effect on Monday will reduce the government’s annual expenditure for electricity subsidies by EGP 15 bn to EGP 75 bn. One KWh/month of electricity costs the government EGP 1.77, Madbouly said. That’s more than the EGP 1.65 households will now pay in the highest consumption bracket.

Electricity subsidies? Although it’s not included in the budget, the government noted previously in the budget’s financial statement that it will cover the Electricity Ministry’s losses resulting from selling electricity below cost.

Doubling down on fiscal and monetary policies + structural reform: The government has a target to bring its debt-to-GDP ratio to under 80% within the next five years from the current level of around 95%, cut inflation to less than 10% at some point in 2025, and continue to focus on structural reforms, investment incentives, and back resilient sectors such as manufacturing and agriculture, Madbouly said.The government hopes to see inflation average at 15% in the next fiscal year as we noted in our budget call coverage below.

Remember: The CBE’s average inflation target is 7% (±2%) by 4Q 2024 and 5% by 4Q 2026.This target has been in place since December 2022.

The Madbouly presser and recent price hikes got ink in the foreign press:Bloomberg

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