Egypt hikes fuel prices amid currency drop

On Friday, the Egyptian government decided to raise fuel prices, a decision that is likely to increase the financial burden on its citizens who are already facing economic challenges. The announcement of the new prices was made on the Cabinet’s Facebook page and took effect immediately. The price for diesel, which is crucial for the transportation of both people and goods, went up from 8.5 Egyptian pounds ($0.18) per liter to 10 pounds ($0.21) per liter. Additionally, the cost of 95 octane gasoline increased to 13.5 Egyptian pounds ($0.29) per liter from its previous price of 12.5 pounds ($0.27).

This move comes in response to the rising costs of importing energy, exacerbated by the local currency’s depreciation and the global increase in energy prices, particularly affected by the unrest in the Red Sea area. On March 6, in an effort to combat the overvaluation of the local currency and a thriving black market, Egypt’s central bank adopted a market-driven exchange rate policy. This led to the Egyptian pound’s official rate dropping significantly against the U.S. dollar, although it has seen a partial recovery in recent weeks due to an influx of foreign currency into the banking system.

In addition to fuel, the government also raised the prices of butane gas cylinders, a staple for many Egyptian households, from 75 Egyptian pounds ($1.61) to 100 pounds ($2.14). It is noted that Egypt imports about half of the 800,000 butane cylinders it consumes daily.

These price increases are expected to further strain Egyptians’ purchasing power and contribute to higher inflation rates. Already, the annual urban inflation rate had surged to 35.7% last month, with food prices alone seeing nearly a 51% increase from the previous year.

These measures align with the conditions set by the International Monetary Fund (IMF) as part of an agreement to extend additional loans to Egypt. Earlier this month, Egypt secured a deal to increase its bailout package to $8 billion from an initial $3 billion following prolonged negotiations with the IMF. The international lender has been advocating for currency devaluation and the implementation of monetary and fiscal policies aimed at economic stabilization, including reducing government subsidies.

The Egyptian economy has faced multiple challenges in recent years, including the impacts of government austerity measures, the COVID-19 pandemic, the geopolitical consequences of Russia’s invasion of Ukraine, and the ongoing conflict between Israel and Hamas in Gaza. Moreover, Houthi attacks on Red Sea shipping routes have negatively affected the Suez Canal’s revenues, a critical source of foreign currency for Egypt. In a significant development last month, the United Arab Emirates announced a $35 billion investment project along Egypt’s Mediterranean coast, offering substantial economic support.