{"id":544493,"date":"2022-03-07T04:00:22","date_gmt":"2022-03-07T04:00:22","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2022\/03\/07\/rising-wheat-and-oil-prices-will-hit-budget-in-egypt-ministers-say\/"},"modified":"2022-03-07T04:00:22","modified_gmt":"2022-03-07T04:00:22","slug":"rising-wheat-and-oil-prices-will-hit-budget-in-egypt-ministers-say","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2022\/03\/07\/rising-wheat-and-oil-prices-will-hit-budget-in-egypt-ministers-say\/","title":{"rendered":"Rising wheat and oil prices will hit budget in Egypt, ministers say"},"content":{"rendered":"

<\/a> Rising global <\/strong>wheat prices could cost the government an additional EGP 15 bn <\/strong>this fiscal year<\/strong>, Finance Minister Mohamed Maait told Bloomberg Asharq (watch, runtime: 1:35<\/a>). The ministry assumed an average price of USD 255 per ton in this year\u2019s budget but the state is now paying USD 350, Supply Minister Ali Moselhy said last week<\/a>.<\/p>\n

Wheat prices have surged to new heights since the end of February when Russia <\/strong>invaded Ukraine:<\/strong> Russia and Ukraine supply around a quarter of the world\u2019s wheat but the conflict has all but removed their production from the global market.<\/p>\n

The two countries accounted for <\/strong>86% of Egypt\u2019s imports<\/a><\/strong> in 2020. <\/strong>Egypt is the world\u2019s largest importer of wheat and last year purchased 11.6 mn tons<\/a>, 4.7 mn of which were bought by state grains buyer GASC.<\/p>\n

Prices were a problem even before the war in Ukraine broke out<\/strong>, with Maait saying last month that the recent rise in global wheat prices would cost us an additional EGP 12 bn<\/a> this year. UN figures released Saturday<\/a> showed that global food prices hit record highs in February, before Russia launched military action at the end of the month.<\/p>\n

The global grain market is messy right now:<\/strong> GASC has canceled two<\/a><\/a>tenders<\/a> since the beginning of the war due to high prices and a lack of bids while another two cargoes are currently stuck in Ukraine<\/a>. Egypt\u2019s 4.5-month stockpile and a bigger domestic harvest<\/a> mean there are no imminent shortages on the horizon, and Egypt has signaled it may relax requirements as it looks at other potential suppliers including the US, Romania and Kazakhstan<\/a>. And Ukraine is now saying that it could start shipping grain by rail<\/a> to Romania, Poland, Hungary and Slovakia.<\/p>\n

Expect talk of bread subsidies to increase:<\/strong> The Finance Ministry allocated almost EGP 50 bn to bread subsidies in FY 2021-2022 but with prices having risen 37% above budgeted forecasts the government is facing a sizable increase to its subsidy spend. President Abdel Fattah El Sisi first mentioned the possibility<\/a> of a subsidy taper last year, and the Supply Ministry is expected to announce a plan by the end of March<\/a>.<\/p>\n

Lifting bread subsidies will likely push Egypt\u2019s inflation rate to 12%<\/strong>, Al Ahly Pharos\u2019 head of research Radwa El Swaify told Al Arabiya<\/a>. On the current trajectory, consumer price growth will reach 9% by 3Q2022 but moves by the government to raise bread prices will push inflation past the central bank\u2019s 7% (\u00b12%) target range, she said. Annual urban inflation rose to 7.3% in January<\/a>, its highest level in almost two and a half years.<\/p>\n

The longer the war, the greater the challenges: <\/strong>Ukraine\u2019s summer harvest could be threatened if the war drags on, pressuring prices further, the Financial Times<\/a> says.<\/p>\n

The uncertainty is exacerbating the price crunch:<\/strong> \u201cThe market is worried that this is not a problem that\u2019s going to be solved any time soon,\u201d an Agricensus editor said. The salmon-colored paper notes that Egypt, Lebanon, Libya and Syria are among the countries that have historically had a very high appetite for Ukrainian wheat.<\/p>\n

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ON THE OIL BEAT-<\/strong><\/p>\n

Egypt is \u201cnegatively affected\u201d by soaring oil prices in the global market<\/strong>, Oil Minister Tarek El Molla yesterday told Sky News Arabia (watch, runtime: 1:18)<\/a>. As a net importer of crude oil and petroleum derivatives, daily changes in oil prices \u201care not in Egypt\u2019s interest,\u201d El Molla said.<\/p>\n

Brent is now almost double the price forecast in the state budget: <\/strong>Oil prices have spiraled as the war in Ukraine effectively blocks key Russian supply to markets, with Brent crude closing at 118.11 last week \u2014 more than 22% higher than before the war broke out on 24 February, and almost double the USD 60 benchmark used for the FY 2021-2022 budget. Finance Minister Mohamed Maait acknowledged<\/a> the situation last week, telling Al Masry Al Youm that the surge in oil prices is not \u201cgood news\u201d for the economy, and pointing out that Egypt currently imports more than 120 mn barrels of crude a year.<\/p>\n

Wartime gas hub:<\/strong> Natural gas prices have spiraled to new record highs in Europe in response to the conflict, potentially providing an opportunity for Egypt to offset some of the pain caused by the oil price spike. \u201cWe can take advantage of this period\u201d when energy prices are high to maximize LNG exports, El Molla said. \u201cWe hope that gas exports will compensate for part of the cost of importing oil and petroleum products,\u201d he said.<\/p>\n

The Oil Ministry has been working to <\/strong>increase<\/a><\/strong> the amount of gas it imports from Israel for <\/strong>re-export to Europe<\/strong>, which is in search of alternative suppliers to decrease its reliance<\/a> on Russian gas. That said, it\u2019s not clear if we currently have capacity<\/a> to up shipments, while Europe doesn\u2019t have the room needed<\/a> at import terminals to significantly increase LNG imports.<\/p>\n

NOT HELPING MATTERS-<\/strong><\/p>\n