Fuel price hike: How does the impact extend to Egyptians’ tables?

Jamalat complains that the prices of diesel, oils used to operate irrigation machines and various agricultural machinery have doubled over the past ten years, which has exceeded her ability to pay in cash.

The price of a liter of diesel was 110 piasters at the beginning of President Abdel Fattah el-Sisi’s rule of Egypt at the end of May 2014. In June of the same year, a 63% increase in the price of diesel was approved, bringing the price of a liter to 180 piasters. The increases continued from that time until the price of a liter today exceeded 11.5 pounds.

Irrigating one acre during the season requires between 200 and 600 liters of diesel, as fuel for water pumping machines until it reaches the agricultural land, in light of the water scarcity in some areas, according to Jamalat.

The Egyptian farmer points out that there is a black market for diesel fuel operating in the villages, with prices set by merchants and farmers subject to it whenever there is a shortage of diesel fuel, in the absence of alternatives.

Mohamed Rizk, owner of a fruit and vegetable shop in a Cairo neighbourhood, told the BBC: “These increases in fuel will certainly lead to significant increases in the prices of vegetables and fruits. From the source, the farmer will be forced to increase the price of the agricultural crop because the cost of production has increased for him, in addition to the increase in transportation costs and so on.”

He added that in recent years, “the prices of fruits and vegetables in particular have witnessed unprecedented increases in prices, which has made purchasing activity scarce, and we do not know what will happen next.”

“Microbus drivers – one of the most widely used means of transportation in Egypt – have, over the past few days, without justification, increased the fare beyond the price set by the government, even before the recent increase in the price of gasoline,” university student Walaa Adel told the BBC. “This has doubled the burden on many who are forced to ride this means of transportation and have no alternative.”

Every increase in fuel prices approved by the state is followed by decisions by the governors to determine the official percentage increase in the fare for internal transportation in each governorate or between governorates. However, citizens complain that these official prices are nothing more than ink on paper and no one adheres to them, especially at the beginning of implementation.

“These increases affect our livelihood,” taxi driver Mohammed Falsto told the BBC. “We have to increase the price of the ride, which makes people reluctant to ride with us, and this harms everyone.”

Falstou was surprised by the Prime Minister’s statements in which he said that the state would be forced to raise fuel prices over the next year and a half, and the taxi driver asked: “What about all these increases over the past years? Not a year has passed without an increase or two.”

Egyptian Prime Minister Mostafa Madbouly said on Wednesday during a press conference that his government is about to raise the prices of petroleum services during the next eighteen months until the end of next year, noting that this measure will be gradual so as not to affect inflation rates or create more burdens on citizens, as he described it.

Since the beginning of Sisi’s era, fuel and petroleum product prices have been raised more than 21 times, including 10 increases in diesel and gasoline.

In 2019, the so-called automatic fuel pricing mechanism was established, which is done through a committee of specialists that meets every 3 months to review fuel prices globally and decides to either fix, increase, or reduce fuel prices in Egypt. However, this committee has only approved a reduction twice during the Corona pandemic crisis in 2020 and 2021, and by very few piasters. Prices have also been fixed a few times, and most of the time, increases are approved for either all or some petroleum products.

The late President Hosni Mubarak avoided increasing fuel prices during his years in power, but in 2008, increases in gasoline and diesel were approved, ranging between 40 and 65 piasters, so that the price of 92 gasoline became 185 piasters instead of 145 piasters, and 95 gasoline became 275 piasters instead of 175 piasters, and diesel was priced at 105 piasters instead of 70 piasters, while the price of 80 gasoline, the most commonly used in taxis and transportation, was fixed.

Fuel prices did not witness any increases during the rule of the Military Council, nor during the rule of the late Muslim Brotherhood-affiliated President Mohamed Morsi, nor during the year of interim President Adly Mansour.

The current increase in fuel prices is the second in 2024, as Egypt had raised fuel prices last March, about two weeks after implementing a new devaluation of the Egyptian pound against the US dollar, in light of the economic crisis that the country has been exposed to.

For his part, economic analyst Abdul Nabi Abdul Muttalib told the BBC: “The recent decision to increase fuel prices is a wrong decision at the wrong time, because all indicators show that fuel prices are decreasing globally, and therefore the government does not have logical and acceptable justifications for these increases.”

“The password is the International Monetary Fund and its conditions,” he continued, warning that this could increase the “gap of mistrust” between the government and citizens, who may feel that the government did not take this decision “for national economic considerations, as it says, but for external dictates.”

The IMF estimated in April that fuel subsidies in Egypt would need to fall from EGP 331 billion ($6.8 billion) in fiscal year 2023-24 to EGP 245 billion ($5.1 billion) in 2024-25.

Some attribute the fuel price increases to Egypt’s desire to meet the IMF’s requirements in order to obtain the loan it seeks, as Cairo reached an agreement with the International Monetary Fund last March to raise the value of its loan to $8 billion instead of the $3 billion that had been agreed upon in December 2022, as part of a financing package from international institutions and entities to help Egypt confront the economic challenges it faces, especially the hard currency shortage crisis.

This came after the Egyptian government took successive flotation decisions since the end of 2022, which caused the Egyptian currency to lose about two-thirds of its value, in addition to other decisions related to raising fuel prices and reducing support for food commodities, in implementation of the Fund’s requirements as well.

The Fund had postponed the date of the third review of the extended loan program for Egypt, which was scheduled for the 10th of this month, to the 29th of the same month. Some attributed this to the Fund’s objection to the failure to implement its conditions, so the Egyptian government preempted that review by increasing fuel prices.

Abdul Muttalib stressed that the decisions to increase fuel prices will certainly lead to double increases in the prices of other goods and services because fuel is used in almost everything, whether production, transportation, etc.

The economic analyst pointed out that according to the indicators, the government may reduce the value of the pound against the dollar again soon, “in implementation of the conditions of the Fund, which believes that the current exchange rate is not fair.”

For his part, Khaled Othman, Assistant Minister of Petroleum and Mineral Resources of Egypt, said that there are several reasons that prompted the Automatic Pricing Committee for Petroleum Products to raise the prices of gasoline and diesel.

Local media quoted Osman as saying, “Global events and geopolitical tensions such as the events in Gaza and Sudan, and the movement of the exchange rate, have led to a significant increase in the cost.

He explained that the subsidy for diesel has almost doubled to reach 20 pounds per liter, noting that the surrounding countries sell diesel at a price exceeding 35 pounds, while its price in the global markets is about 34 pounds, according to what he said.

Osman stressed that: “The daily support provided for diesel causes the state to lose 450 million pounds per day, and if we add the support for gasoline and the support for fuel supplied to electricity, the support exceeds one billion pounds per day, and this is a terrifying number,” he said.

Media outlets quoted an unnamed Egyptian official as saying that the government is seeking to save 36 billion pounds from the recent fuel price hike, but observers confirmed that the losses to the production sectors will be much greater than that.

Mohamed El-Geblawy, a member of the Egyptian parliament’s energy committee, told the BBC: “The pricing committee approved fuel price increases based on a review and in accordance with global increases in fuel prices, and the Egyptian state must proceed in parallel with global increases.”

Al-Jablawi downplayed the impact of the new increases on the current situation in the country, saying, “We do not deny that some people are exploiting this increase to double the prices of goods and services such as transportation and food products, and therefore the government is required to strictly monitor this.”

Al-Gablawi concluded by saying, “This increase was delayed a lot due to the state of tension in the Egyptian street due to the large increases in the prices of goods and services and the harm that people suffered from that, but this increase was necessary.”