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By Patrick Werr, Aidan Lewis and Yousef Saba
CAIRO (Reuters) – Egypt will eliminate subsidies on most energy products by June 15, the International Monetary Fund announced in a January letter issued by the IMF as part of the review of the three-year budget. $ 12 billion) loan program with the lender.
This will involve an increase in the price of petrol, diesel, kerosene and fuel oil for consumers, which now account for 85-90% of their international cost, the letter dated 27 January said.
The letter from the Egyptian Minister of Finance and the governor of the central bank was contained in an IMF report dated January 28, published after the February payment of the fifth tranche out of six of the loan.
The loan program began in 2016 and is linked to reforms that include a sharp devaluation of the Egyptian pound and the introduction of a value-added tax. They helped stabilize the Egyptian economy, but also put millions of Egyptians under increased economic pressure.
Fuel prices have risen steadily over the last three years. LPG and fuel oil used for power generation and bakeries are not included in the commitment to achieve full cost recovery through subsidy cuts, the letter said.
In its letter, the government stated that after starting to badociate less used Octane 95 gasoline with international prices – which it achieved in April – it would introduce indexing mechanisms. similar for other products in June, with the first adjustments scheduled for mid-September.
The government said it has also put in place a hedging mechanism to protect against shocks related to oil and other commodities. In its review, however, the IMF "recommended caution by using financial instruments with upfront costs that only temporarily protect against extreme price fluctuations", referring to coverage.
TARGET OF DEBT
Since the launch of the IMF loan program, Egypt has borrowed heavily abroad.
In its letter, the government announced its intention to reduce its general debt by 86% of gross domestic product (GDP) by the end of June to 72% by June 2023. Debt accounted for 93% of GDP in June 2018.
He also pledged to completely eliminate the arrears held by the state-owned company, the Egyptian General Petroleum Company (EGPC), by the end of June this year. Arrears stood at $ 1.043 billion at the end of 2018.
Egypt said it has limited the government's ability to borrow from the central bank via an overdraft account at 66 billion Egyptian pounds ($ 3.82 billion) in 2018/20, or 10 percent of the government's revenues. three years ago, to manage liquidity and reduce inflation.
The central bank would phase out subsidized loans to small and medium-sized enterprises and social housing programs. Instead, these programs would be funded directly from the state budget, says the letter.
The sale of stakes in at least 23 state-owned companies over a period of 24 to 30 months as of April 2018 is expected to raise about 80 billion Egyptian pounds, he added.
In its review, the IMF said Egypt's reform program was "overall on track".
"Progress on structural reforms has been mixed, but the program's goals remain achievable," he said.
"Sustained efforts are needed to advance critical reforms in competition, industrial land allocation, transparency and governance of public enterprises and government procurement."
A recent tightening of global financial conditions has aggravated the balance of risks, as Egypt is exposed to any unforeseen increase in oil prices, the IMF said.
"Calls for state-backed loans, which have been increasingly used to fund large infrastructure projects by public entities, or other contingent liabilities could also put pressure on public debt, "says the report.
The IMF did not explain the delay in the publication of the magazine.
(Written by Aidan Lewis, Edited by Sonya Hepinstall)
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