Monday 07 March 2022
Books – Mustafa Eid:
International oil prices continued to fly during today’s trading, approaching their highest levels ever, after their recent jump in conjunction with the Russian-Ukrainian war and Western sanctions on it, which may have a potential impact on the public budget in Egypt.
Oil prices jumped today to their highest levels in 2008 and near their highest historical level, as the price of a barrel of Brent crude reached above $139, before losing some of its gains to reach $124.82, an increase of 5.7 percent compared to the end of last Friday’s session.
Egypt is affected by the rise in oil prices from several aspects, the most important of which are the prices of gasoline and other petroleum products, which are reviewed every 3 months based on oil price developments, in addition to their impact on the expenditure item on petroleum subsidies in the state’s general budget, and thus the possibility of affecting the budget deficit.
Engineer Tarek El Molla, Minister of Petroleum, said in statements to Sky News Arabia yesterday that Egypt’s economy will “negatively be affected” by the significant rise in oil prices resulting from the war in Ukraine. Not in the interest of Egypt.
He added, “Egypt is an importer of crude oil and petroleum derivatives, and therefore there is constant aspiration and anticipation so that there will not be an increase in prices that affects the system.”
Impact on gasoline prices
Analysts expected the government to raise gasoline prices for the fifth time during the meeting of the automatic pricing committee for petroleum products expected to be held next month, after the big jump in oil prices.
It is expected that the automatic pricing committee for petroleum products will meet next month, after the government raised gasoline prices 4 times during the past year, at a value of 25 piasters per liter, each time in the months of April, July, October 2021 and February 2022, while keeping the price of a liter of diesel unchanged.
A liter of 80 gasoline is currently sold at 7.25 pounds, a liter of gasoline 92 at 8.5 pounds, a liter of gasoline 95 at 9.5 pounds, and a liter of diesel at 6.75 pounds.
In 2019, the government began applying an automatic pricing mechanism to a number of petroleum products, after liberalizing their prices within a program that it implemented to gradually eliminate subsidies for these products.
Alia Mamdouh, chief economist at Beltone Investment Bank, expects the government to raise the prices of all types of gasoline by 50 piasters per liter, provided that it keeps diesel prices unchanged.
Esraa Ahmed, a macroeconomic analyst at Al-Ahly Pharos Securities Brokerage Company, agreed with high expectations, that gasoline prices would increase by 50 piasters per liter and that diesel prices would be fixed.
Esraa Ahmed told Masrawy: “We expect the Audit Committee to raise gasoline prices for the fifth time in a row, after the average of Brent crude rose during the first quarter of 2022 by about 15.6% compared to the previous quarter, and it also rose by about 9% compared to the level it recorded just before the last increase.” In the first week of February.
Mona Bedair, chief economist at Prime Securities, said in a recent company report that the current oil price environment and near-term expectations will prompt the Fuel Commodities Pricing Committee to increase prices (including diesel and possibly diesel) during its April meeting, which increases inflationary pressures.
Fuel subsidy and budget deficit
The increase in international oil prices poses risks to achieving the fuel subsidy targets and consequently the budget deficit during the current fiscal year, especially if it continues until the end of next June at the high levels it reached.
Egypt estimates a barrel of Brent crude in this year’s budget at $60, which means that the current prices of Brent crude are more than double the price estimated in the state’s general budget.
In the current year’s budget, the government in Egypt aims for petroleum subsidies to record about 18.4 billion pounds, compared to about 28.2 billion pounds in the 2020-2021 budget, according to data from the Ministry of Finance.
In a recent report last month, the World Bank said that every $10 increase in the world oil price over the estimated price in Egypt’s general budget during the current fiscal year will result in an increase in the GDP deficit by 0.2% to 0.3%.
The bank explained in the Egyptian Economic Monitor report, published on its website, that this means that the officially announced goal of the total budget deficit, which amounts to 6.7% of GDP this year, may not be achieved.
This comes at a time when Finance Minister Mohamed Maait kept the government’s target for the budget deficit, in statements during a conference yesterday.
This came despite the Finance Minister’s expectations that the cost of importing wheat from abroad would rise by more than 12 billion pounds in the current budget, due to the negative impact of the current global geopolitical tensions, according to his statements to CNBC Arabia yesterday.
This is due to wheat prices also jumping to their highest level since 2008 at the end of last week, in light of the escalating fears of a global shortage of supplies coinciding with the war erupting between two of the world’s largest grain exporters, according to Bloomberg Agency.
Nevertheless, the Minister of Petroleum hopes that an increase in natural gas prices will contribute to the negative impact of the increase in oil prices, with Egypt working to exploit this period to maximize its liquefied gas exports, according to the minister.