96946 1 Preface The Egypt Economic Monitor provides an update on key economic developments and policies over the past six months. It also presents findings from recent World Bank work on Egypt. It places them in a longer-term and global context, and assesses the implications of these developments and other changes in policy on the outlook for Egypt, especially in the context of the recent political changes in the country. Its coverage ranges from the macro-economy, to the monetary situation and to indicators of human welfare and development. It is intended for a wide audience, including policy makers, business leaders, financial market participants, and the community of analysts and professionals engaged in Egypt. The Egypt Economic Monitor is a product of the World Bank’s Egypt Macroeconomic and Fiscal Management (MFM) team. It was prepared by Ahmed Kouchouk (Senior Economist) and Sara Alnashar (Economist), under the general guidance of George Anayiotos (Lead Economist) and Auguste Tano Kouame (Practice Manager). Mohab Hallouda (Senior Energy Specialist) provided input on energy issues, Nur Nasser Eddin (Economist) contributed to the Money and Banking section and Rana Fayez (Consultant) provided research assistance and general support to the team. The findings, interpretations, and conclusions expressed in this Monitor are those of the World Bank staff and do not necessarily reflect the views of the Executive Board oftThe World Bank or the governments they represent. For information about the World Bank and its activities in Egypt, please visit http://www.worldbank.org/en/country/egypt. To be included on an email distribution list for this Egypt Economic Monitor series and related publications, please contact Iman Sadek (isadek@worldbank.org). For questions and comments on the content of this publication, please contact Ahmed Kouchouk (akouchouk@worldbank.org) or Sara Alnashar (salnashar@worldbank.org). Questions from the media can be addressed to Nehal El Kouesny (nelkouesny@worldbank.org). 1 Table of Contents I- E X E C U T I V E S U M M A R Y ............................................................................................................................. 3 II- P O L I T I C A L & S O C I A L C O N T E X T .................................................................................................. 4 I I I - R E A L S E C T O R , P R I C E S & P O V E R T Y ........................................................................................ 5 I V - P U B L I C F I N A N C E & D E B T ..................................................................................................................... 7 V- M O N E Y & B A N K I N G ..................................................................................................................................... 8 V I - E X T E R N A L S E C T O R ..................................................................................................................................... 9 V I I - O U T L O O K ...............................................................................................................................................................10 V I I I - R I S K S & C H A L L E N G E S .........................................................................................................................11 I X - S P E C I A L F O C U S ..............................................................................................................................................12 Topic 1: Macro-Fiscal Implications of Recent Tax Reforms & Investment Promotion Measures Topic 2: The Macroeconomic Implications of Developments in Egypt's Energy Sector X- A N N E X E S .................................................................................................................................................................26 Annex 1: Egypt’s Macroeconomic Projections (Baseline Scenario) Annex 2: Egypt Summary Tables Annex 3: Consumption of Energy Products by Sector Annex 4: Energy Prices 2 I- E X E CU TI V E SUMMA RY i. Egypt’s economic activity is gaining momentum. Growth accelerated to 5.6% during the first half of FY15, compared to a dismal 1.2% in the same period last year. The recent spike in economic activity reflects favorable base effects, but more importantly broad-based sector recovery, especially in tourism and manufacturing. On the demand side, growth continues to benefit from resilient consumption and government stimulus, supported by large financial inflows from Gulf States. In March 2015, Egypt held a high level Economic Development Conference, which culminated with the signing of sizeable investment deals worth US$36 billion, securing external financing worth US$24 billion, and the announcement of a new Gulf support package worth US$12.5 billion. This would boost the ongoing economic recovery and facilitate efforts to achieve macroeconomic stability. Annual growth is expected to double to 4.3% in FY15, and should increase further thereafter, compared to the muted growth of 2% during FY11-FY14. In tandem, unemployment reversed course and started to slowly inch downwards, averaging 13% in the first half of FY15 (still 4 percentage points higher than FY10). The latest available official poverty headcount indicated that more than 26% of Egypt’s population lived below the poverty line in FY13. ii. Egypt’s underlying fiscal stance is improving, thanks to recently adopted measures. In July 2014, the government enacted bold reforms, most importantly the partial streamlining of energy subsidies, in addition to structural revenue enhancement measures including new taxes on real estate, capital gains and dividends as well as higher taxes on alcoholic beverages and cigarettes. Simultaneously, budget allocations to health and education increased to comply with the constitutional requirements and spending on social safety nets and infrastructure also increased. The deficit is expected to decline to 11.5% of GDP in FY15, compared to 12.8% in FY14 and 13.7% of GDP in FY13. This would bring down government debt to 94% of GDP by end-FY15, from 95.5% of GDP at end-FY14. iii. Inflation picked up in early-FY15 in light of the adopted fiscal consolidation measures. Inflation averaged 10.6% during the first eight months of FY15, but core inflation was relatively contained at 8.4% due to a proactive monetary policy and favorable external conditions (a weaker Euro and lower international prices of oil and grains). Nevertheless, annual inflation is likely to remain in the low double-digits (around 10% through FY17), as further fuel price increases are likely to occur. Real interest rates are expected to hover around zero. iv. Egypt’s external accounts are stabilizing due to a rebound in key foreign-income earning items and is expected to improve going forward after the successful economic conference in March 2015. Reserves had dropped during the second quarter of FY15, but will start recovering on the back of the support package pledged by the GCC during the March Economic Development Conference and the expected pick up in FDI and financing inflows. The balance of payments was in surplus during the first quarter of FY15, driven by strong remittances, rebounding tourism, and higher FDI. Recently, the repayment of US$3 billion of Qatari deposits and US$2.8 billion of oil companies’ arrears added pressures on reserves, which fell to US$15.5 billion by end- February 2015 (covering less than 3 months of merchandise imports). Reserves are expected to reach US$17- 18 billion by end-FY15 as exceptional financing and investments start trickling in. The official exchange rate depreciated in January 2015 by 7%, after holding steady for six months. A weaker Pound and administrative measures strengthened the Pound in the black market and shrunk the parallel market premium from 8% to 2% since late January 2015. 3 v. The IMF conducted its Article IV consultation in November 2014 and the final report generally commended the authorities’ medium term plans while highlighting some risks including slippage in implementing reforms and a large external financing gap. Egypt’s main risk is to sustain the ongoing economic recovery which requires improved security. Notwithstanding the authorities’ ambitious fiscal consolidation plan, the deficit and debt aggregates will remain high and unsustainable. Further, there are risks of policy slippage as some details and the exact timing of policy measures are still missing and implementation capacity remains a challenge. Further, sustaining the reform pace requires efficient and well-targeted safety nets, which might take time to build. Finally, there is significant uncertainty regarding the financing of the announced mega-projects and the potential contingent liabilities that may arise. II- POLITICAL & SOCIAL CONTEXT 1. The political roadmap announced in July 2013 is progressing, but the final milestone, electing the House of Representatives, was postponed leading to a protracted transition. The parliamentary elections were scheduled to take place over two stages during March-May 2015, but were postponed in light of the Supreme Constitutional Court’s (SCC) verdict that deemed some articles of the Parliamentary Elections Law s unconstitutional. The SCC stated that the Election Constituency Division Law did not ensure fair and proportional representation of all voters which violates Article 102 of the Constitution. The Court later ruled against the article in the Electoral Law which banned dual nationality Egyptians from candidacy. The President requested amendment of these laws in a month to allow for the elections to take place as soon as possible. However, it is still unclear when they will be carried out. 2. Recurrent bouts of terrorist attacks and violence in Sinai and across the country are worsening the security situation. Small-scale protests continue to take place, occasionally resulting in violent confrontations with security forces. Terrorist attacks are becoming recurrent, targeting mainly the army, police and government entities. However, recently these incidents have increasingly been directed towards civilians, which escalated with the build-up to the Economic Conference. In Sinai, two major terrorist attacks took place in October 2014 and January 2015 that claimed the lives of 77 soldiers and left more than a hundred injured. Both attacks were carried out by Ansar Bait al-Maqdis, who had pledged allegiance to the Islamic State (IS). Accordingly, the state of emergency in Sinai, introduced last October, was extended, and the government declared a state of war on terrorism. On the external front, Egypt launched a series of aerial attacks on IS strongholds in Libya, following the brutal killing of 21 Copts by IS in Libya in February 2015. 3. In recent months, the President introduced key administrative changes in an attempt to enhance the State’s ability to address public demands and aspirations, including a long-awaited change of Governors and an unexpected partial Cabinet reshuffle. The President issued a decree founding four specialized councils to be headed by him, consisting mainly of non-government experts with decent youth representation to help in planning general state policies in the following areas: (1) education and scientific research; (2) community service; (3) economic development; and (4) foreign policy and national security. In February 2015, 17 new governors were sworn in, mostly young and with civilian backgrounds. Out of the 17 only three came from a military background (appointed for Suez, Port Said, and Matrouh, the latter on the border with Libya) while the 4 rest are university professors, former civil servants, and private sector CEOs.1 Four governor assistants were also elected, three of which are women. In March 2015, the President unexpectedly announced a Cabinet reshuffle, the first since his election in June 2014. Six ministers were changed and two new cabinet portfolios were added: a ministry of state for population and another for technical education. The ministries in which the changes took place are the ministry of interior, tourism, communication, education, agriculture, and culture. III- REAL SECTOR, PRICES & POVERTY 4. Egypt’s economy has been recovering since the second half of FY14, and more strongly in FY15. Annual GDP growth spiked to 6.8% in the first quarter of FY15,2 up from 3.7% in the previous quarter and a meager 1% in the same quarter a year earlier. Leading indicators point to an expected average growth rate of around 4.3% during FY15, double the pace of growth realized over the period FY11-14 as the economy muddled through the ramifications of the January 2011 revolution. The recent pickup in economic activity has partially benefited from favorable base effects but more importantly from a gradual restoration of confidence. Further, sectoral growth during the first quarter of FY15 has been broad-based. Notably, manufacturing and tourism have started to rebound and posted real growth in double digits, contributing to overall growth by 4 and 1.3 percentage points, respectively. Oil and gas extraction remains a drag on the economy as outstanding arrears owed by the Egyptian General Petroleum Corporation (EGPC) to international oil companies continue to crunch liquidity in the sector. Figure-1a: Contributions to Growth, Figure-1b: Contributions to Growth, 15% demand side supply side Hotels and Restaurant 10% 6.8% Services (excluding hotels and restaurants) 12% Extractions 3.7% Industry (excluding extractions) 5% 2.6% 2.5% 10% 2.2% 2.2% 1.5% 1.0% 1.4% 8% Agriculture 6% 0% 4% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY13 FY14 FY15 2% -5% 0% -2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 -10% -4% FY13 FY14 FY15 Priv. Cons. Public Cons. -6% Investment Net Exports Total GDP Growth -8% Source: Ministry of Planning, Monitoring and Administrative Reform. 5. On the demand-side, all GDP components contributed positively to growth during the first quarter of FY15 (first time since FY11). Private consumption continued to be the principal driver of growth, backed by resilient remittances and an increase in the minimum wage of civil servants (key demand of January 2011 1 The previous cohort of governors appointed in August 2013 included 19 military officers (the usual practice for years), out of 25 governors. 2 Reported statements by the Minister of Planning, Monitoring, and Administrative Reform indicate that growth continued to be strong (at 4.3%) during the second quarter of FY15. Thus, growth reached 5.6% during first half of FY15, around 5 times higher than during the same period last year. 5 revolution). More importantly, two third of the stimulus spending in FY14 was directed to public infrastructure spending thus leading to strong positive contributions to growth by public investment for the first time in3 years. That in turn started to crowd in private investment, as evidenced by the slow but sustained growth in credit to private businesses (and to a lesser extent households as well as pick up in FDI inflows and private investments spending (represents 70% of total investment spending in first quarter of FY15).Total investment spending has contributed positively to growth since the third quarter of FY14, the first time in 3-years. The recovering foreign- income earning sectors have also helped decrease Egypt’s chronically negative net exports balance of goods and services with a positive contribution to growth during the first quarter of FY15. 6. In tandem with the pick-up in economic activity, unemployment is starting to slowly inch downwards though overall labor market conditions remain dismal. The unemployment rate reached 12.9% in the last quarter of 2014, down from 13.4% a year earlier, but still almost four percentage points higher than prior to the economic downturn since FY11. Further, labor participation rates are still depressed as new labor market entrants (mainly the youth) as well as the currently unemployed are either traveling abroad in search of job opportunities, joining the informal sector, or even exiting the labor force (mainly females). Out of the 3.6 million currently unemployed persons, some 63% are between 15 and 29 years old, making youth unemployment the main challenge for economic inclusion and stability. Unemployment rates among males and females recorded 9.2% and 24.8%, respectively, during the second quarter of FY15 (Figure-1b), compared to 4.8% and 22.8% in the same quarter of 2011. Figure-2a: Unemployment Rate (%) Figure-2b: Unemployment Rate by 16% Gender 14% 30% 12% 25% 10% 20% 8% 15% 6% 10% 4% 5% 2% 0% 0% Oct-Dec 2013 Oct-Dec 2014 Oct-Dec 2015 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 FY10 FY11 FY12 FY13 FY14 FY15 Male Female Source: Central Agency for Public Mobilization and Statistics. 7. Inflationary pressures continue to persist on the back of the fiscal consolation measures and a weaker pound. Annual urban headline inflation averaged 10.6% during the first eight months of FY15, fueled by higher energy prices and excises on alcoholic beverages, tobacco, and cigarettes, with the latter witnessing two successive tax hikes since July 2014. Further, the depreciation of the official exchange, as well as supply bottlenecks in distribution of butane gas cylinders and diesel oil, has also contributed to the recent inflation spike. On the other hand, core inflation (which excludes regulated and volatile items) remained contained at 8.4 percent, partially reflecting a proactive monetary policy by the CBE to preempt second round inflationary pressures but also favorable external conditions, mainly lower oil and grains international prices and the weakening of the Euro. 6 8. Egypt suffers from high poverty rates. The most recently published official poverty headcounts for FY13 indicate that some 26.3% of Egypt’s population is below the poverty line, most in rural Upper Egypt where poverty rates reach 50%. The Gini coefficient was estimated at 0.30 which points to low inequality by regional and international standards. However, this reflects low incomes across most income groups rather than reasonable living standards for the lowest income groups. IV- PUBLIC FINANCE & DEBT 9. Egypt’s budget deficit inched up during the first seven months of FY15 though the underlying (structural) deficit improved by almost one percentage point. The overall budget deficit for the period July- January FY15 reached EGP159 billion (6.9% of projected FY15 GDP), compared to EGP120 billion (6% of GDP) during the same period last year. The higher deficit was mainly due to lower exceptional grants from the Gulf States. However, fiscal outturn for July-January of FY15 does not yet reflect the impact of streamlining fuel subsidies and lower oil prices as settlements between the treasury and the Ministry of Petroleum had not yet taken place. Also, it does not yet include the impact of higher taxes on dividends, capital gains, and real estate. Excluding exceptional receipts (mainly Gulf inflows), the budget deficit in July-January of FY15 would have been 1 percentage point lower than in the comparable period last year. The deficit continued to be financed largely by issuance of domestic debt (mostly held by domestic entities). 10. During the first seven months of FY15, total revenues decreased by 14% to EGP187 billion or the equivalent of 8% of FY15 projected GDP, some 2.8 percentage points lower than last year. The decline in total revenues reflected lower exceptional receipts of EGP7.8 billion compared to EGP41 billion a year earlier. It also reflected the delay in settling petroleum sector activities with the treasury.3 However, this seemingly poor performance masks an exceptionally robust performance by almost all economically determined tax items. For example, taxes on corporate profits and on wages and salaries recorded annual growth of 45% and 17%, respectively, on the backdrop of the ongoing economic recovery and taxing bonuses granted to government employees. In addition, taxes on goods and services increased by 33% due to higher consumption spending and higher taxes on cigarettes and alcoholic beverages. 11. Expenditures were contained during July-January of FY15 due to the delayed settlement of fuel subsidies and lower interest rates. Total expenditure stabilized in absolute terms but decreased as percent of GDP to reach 14.6%, compared to 16.7% during the same period the year before. Subsidies, Grants and Social Benefits declined by 33% compared to the previous year since the fuel subsidies settlement was not yet recorded. Interest payments posted a moderate annual growth of 11%. This was partially counterbalanced by higher wages and salaries4 and other expenditures (increase year-on-year by 17% and 23%, respectively). In addition, public investment spending accelerated sharply (33% annual increase) as the government is successfully pursuing an ambitious program to modernize the infrastructure base. 3 This includes income taxes paid by EGPC on its operations and on behalf of foreign companies, sales taxes on fuel products, royalties and dividends transferred to the government. 4 The higher wage bill reflects mainly full implementation of the minimum wage scheme. 7 V- MONEY & BANKING 12. The CBE cut its key policy rates in January 2015 on the backdrop of declining inflation in the preceding months and a favorable international price outlook. The CBE has been aiming to strike a balance between curbing inflation expectations and boosting growth, and hence kept key policy rates fixed throughout the first half of FY15. This followed a one-off hike in policy rates in July 2014 to preempt the second round impact of the fiscal consolidation measures adopted. As inflation started to abate, the CBE cut key policy rates by 50 basis points in January 2015; capitalizing on lower imported inflation with the sustained decline in international oil and grain prices, and a depreciated euro against the US dollar. The CBE’s accommodative policy is aiming to stimulate economic activity, amidst downside risks stemming from sluggish growth in the Euro area (Egypt’s main trade partner). Interest rates on Treasury bills inched downwards following the key policy rates cut, and have been stable since the beginning of 2015. 13. Domestic liquidity continued to be driven by strong credit extended to the government, but private credit has also been gradually picking up since the beginning of FY15. Liquidity grew steadily during the first seven months of FY15 by around 16% y-o-y, though more than 2 percentage points lower than its pace a year earlier due to slower growth in domestic assets (mainly reflecting deceleration in government lending ). On the other hand, net foreign assets dropped sharply (-18%, y-o-y) during the same period in the absence of the windfall support from the Gulf. Credit extended to the government (30%, y-o-y) continued to be the principal driver of domestic assets, along with the gradually rising credit extended to the private sector (13.5%, y-o-y, up from an average of 7% a year earlier), which was partially offset by the drop in net foreign assets. Figure-3: Key Policy Rates and 3-Months T-Bill Rates 16 14 91-day T-Bill 12 Rate Overnight 10 Lending Rate 8 CBE Discount Rate May… Nov… Nov… Nov… Nov… May… May… May… 6 Overnight Jan-14 Jan-11 Jan-12 Jan-13 Jan-15 Jul-11 Jul-12 Jul-13 Jul-14 Mar-11 Mar-12 Mar-13 Mar-14 Sep-11 Sep-12 Sep-13 Sep-14 Deposit Rate Source: Central Bank of Egypt. 14. The banking sector continues to post healthy financial soundness indicators, but its asset base is becoming highly concentrated in light of perpetual government lending. The share of non-performing loans stood at 9.1% of total loans by end-June 2014, with 98% of those well-provisioned for. Also, capital adequacy remains sound as Tier 1 capital to risk-weighted assets recorded 10.9% (well above the 5% threshold). Loans-to- deposits ratio declined to 41% by end-June 2014 an indication of ample liquidity, yet it signals banks risk aversion and preference to lend to the government. This has led to excessive concentration of banks’ lending into the less 8 risky government securities (primarily short-term maturities) instead of financing more productive private sector led investments. VI- EXTERNAL SECTOR 15. Egypt’s external accounts are stabilizing despite limited financial and in-kind Gulf aid. The balance of payments achieved an overall surplus of US$0.4 billion (0.1% of projected GDP) in the first quarter of FY15, down from a surplus of US$3.7 billion (1.3% of GDP) in the corresponding period of FY14. The smaller surplus was mainly due to a decline in exceptional GCC inflows and an increasing import bill associated with the economic uptick. 16. The current account turned into deficit during the first quarter of FY15 as merchandise imports picked up while official transfers dropped significantly. The current account registered a deficit of about US$1.4 billion (-0.4% of FY15 projected GDP), against a surplus of US$0.6 billion in the first quarter of FY14 (0.2% of FY14 GDP). The deteriorated current account balance reflects a widening merchandise trade deficit (oil and non-oil) as well as lower cash and commodity grants (mainly from the Gulf) that reached US$1.5 billion in the first quarter of FY15, only a third of what was received during the same period last year. The current account deficit however masks a surge in the net services surplus that reached US$2.1 billion (0.6% of FY15 GDP) compared to a deficit of US$0.2 billion last year, mainly due to rebounding tourism revenues which more than doubled during the first quarter of FY15. 17. The capital and financial account also recorded lower net inflows of US$0.8 billion (0.2% of FY15 GDP), down from US$4.6 billion (1.6% of FY14 GDP) a year earlier. The lower inflows were mainly due to lower Gulf deposits held at the CBE and higher accumulation of foreign assets abroad by the non-banking sector (US$2.2 billion). This was partially balanced by a surge in net FDI inflows, which more than doubled to record US$1.8 billion (0.5% of FY15 GDP) from US$0.7 billion last year. The strong FDI performance reflects resumed inflows into the oil sector and higher Greenfield investments. Finally, net errors and omissions improved to record a US$1 billion surplus compared to net outflows of US$1.5 billion a year earlier, signaling a reversal of unrecorded capital flight and an improvement in investor sentiment. 18. Net international reserves improved in early FY15 but declined recently due to sizeable debt repayments. Reserves continued to inch upwards steadily through the first four months of FY15 reaching US$16.8 billion by end-October 2014. However, the repayment of maturing Qatari deposits and of arrears to foreign oil companies (totaling US$6 billion during the second quarter of FY15) led to a temporary drop in reserves, which then stabilized at US$15.4 billion by end-February 2015, equivalent to 3-months cover of merchandise imports. The official exchange rate depreciated during the second half of January 2015 by 7%, after holding steady in the banking sector for 6 months. The CBE continues to hold regular foreign exchange auctions to ration hard currency, and supply is still short of market demand. A more flexible exchange rate policy by the CBE along with policies that limit the daily amount purchased outside the banking sector have narrowed the black market premium to around 2% in February 2015, after widening to 8% in the previous months. 9 19. Egypt’s external debt continues to be mostly long-term, and declined throughout the first quarter of FY15. Egypt external debt stock (government and non-government) decreased to US$44.9 billion (13.8% of GDP) by end- September 2014, compared to US$47 billion (16.4% of GDP) a year earlier.5 External government debt (which constitutes just below two-thirds of gross debt) was mainly responsible for this decline reflecting repayment of due short-term debt obligations and the impact on the book value of the outstanding debt of the depreciation of other currencies against the US dollar. External government debt declined to US$27.9 billion (8.9% of GDP) at end-September 2014 from US$29.4 billion (10.1% of GDP) at the same time last year. The short-term portion continues to be around 8.7% of total external government debt. VII- OUTLOOK 20. Real GDP growth is expected to almost double in FY15 to reach close to 4.3%, up from an average of 2% in FY11-FY14. The projected recovery is expected to be driven by strong private consumption due to resilient remittances, higher wages to civil servants, and contained food inflation. Investments are expected to also contribute strongly to growth. Accelerated public infrastructure spending, the gradual restoration of confidence especially after the March 2015 Economic Conference, and an ambitious plan to pursue large projects and improve the business environment could all help crowd-in private investment. Economic activity is expected to be broad-based, with strong recovery by key sectors (tourism and manufacturing). The lower international oil prices provide an upside factor by lowering the cost of production and increasing energy supply. Beyond FY15, oil and gas extractives may also improve as outstanding arrears are paid and new exploration contracts may be agreed. Furthermore, the oil and gas deals that were signed during the Economic Development Conference in March 2015 are expected to ease the woes of the sector.6 Growth could continue to increase to around 5% by FY17, provided that Egypt’s long-standing structural problems (cumbersome business environment and rigid labor market conditions) are addressed. Thus, Egypt’s output gap will continue to narrow and may disappear by FY16. Meanwhile, a slow recovery in the euro zone (Egypt’s main trade partner) would limit Egypt’s economic recovery. 21. With the projected pickup in growth, the upward price adjustments of fuel products, and further likely deprecation of the pound, inflation is expected to remain in low double-digits (average around 10% through FY17). This assumes a proactive stance by the CBE in curbing inflationary pressures, a subdued international commodity price path, and sustained improvements in internal supply infrastructure and policies that ease supply bottlenecks. On the fiscal front, Egypt is expected to bring down the overall budget deficit to around 10% of GDP by FY17. This assumes gradual streamlining of energy subsidies as well as phasing-in of the VAT and a new mining law, while enhancing social spending and meeting the constitutional expenditure pledges. Finally, Egypt’s external accounts are likely to slightly improve in FY15 and would continue to recover in the following years. Nevertheless, the current account is expected to remain in deficit through FY17 due to the widening trade deficit as the economy recovers and imports increase. Prolonged low international oil prices may lead to lower remittances and FDI from the Gulf. 5 This compares favorably to an average of 27% of GDP for the MENA region. The recently announced Gulf support packages as well as the recently signed financing deals are likely to lead to higher external debt accumulation. 6 Egypt signed deals with British Petroleum worth US$12 billion over 5 years (the biggest deal in Egypt’s history that should provide 25% of the country’s natural gas needs by 2017). Egypt also signed a deal with British Gas worth US$4 billion over two years and with UAE’s Dana Gas worth US$0.4 billion. 10 VIII- RISKS & CHALLENGES 22. Egypt’s main risk and priority is to sustain and enhance the economic recovery, which requires improved security conditions and steadfast reform implementation. Notwithstanding the Egyptian government’s ambitious fiscal consolidation plan, the budget deficit and debt aggregates will remain high and unsustainable. Further, there are risks of policy slippage, as some details and the exact timing of announced policies are still missing and implementation capacity remains a concern. Further, sustaining the reform pace requires efficient and well-targeted safety nets, which might take time to build. Finally, there is significant uncertainty regarding the financing of the announced mega-projects, and the potential contingent liabilities that may arise. 11 IX- SPECIAL FOCUS Topic-1: Macro-Fiscal Implications of Recent Tax Reforms and Investment Promotion Measures Policy Measures and their Macro and Fiscal Implications This note takes stock of recent attempts by the government to stimulate private investments through reforming the tax system, enacting a new investment law, and hosting a high level economic conference. In addition to laying down the details of the recent developments and policy changes, the note highlights the likely macro and fiscal implications of these changes. Further, the note projects and presents a consistent medium-term macro framework with all the new changes and developments jointly playing out as planned (a high case Scenario), and benchmarks this to the situation where these reforms are gradually implemented and announcements are partially realized (a low case scenario that is consistent with the projection path assumed throughout the EEM). 1. Recent Measures and Developments In an attempt to facilitate higher growth and to accelerate private investments and job creation, the Egyptian Government announced important tax amendments and ratified a new investment law ahead of the Egypt Economic Conference held on March 13-15, 2015. On the taxation front, the Cabinet approved the following amendments that would become effective starting FY16 and/or with the submission of 2015 tax returns:  Unify the highest income tax rate on individuals and corporates at one-single rate of 22.5%, down from 25% and 30% for individuals and corporates, respectively. The previous top corporate tax rate of 30% included a 3-year temporary additional 5% that was introduced in July 2014 to finance the additional constitutional pledges for health, education and scientific research. This temporary tax hike was planned to expire by June 2017, yet the recent announcement fast-tracked the phasing out of this exceptional tax hike to June 2015 (Table-1).  Maintain new tax rates for the coming 10 years to ensure a stable tax regime after 4 years of frequent changes.  Reduce sales taxes on capital goods and machinery from 10% to 5%, and accelerate and simplify the process of refunding taxes paid on inputs and capital goods.  Apply the new tax rate uniformly on all activities and establishments including new businesses to be established in special economic zones such as the Suez Canal Corridor mega-project. However, existing businesses established prior to enactment of the new tax changes will continue to benefit from any special tax treatment and/or reduced income tax rate(s) already granted. 12 Table-1: Comparative assessment of Egypt’s corporate tax regime (before and after recent changes) Old Corporate tax regime New Corporate Tax regime Net Profit Tax rate Net Profit Tax rate 0 - 1 Million 25% 0 - 1 Million 22.5% Above 1 Million 30% Above 1 Million 22.5% Net profit (EGP Tax Paid (EGP Effective tax Net profit Tax Paid (EGP Effective tax Million) Million) rate (%) (EGP Million) Million) rate (%) 0.5 0.13 25.0% 0.5 0.11 22.5% 1 0.25 25.0% 1 0.23 22.5% 2 0.55 27.5% 2 0.45 22.5% 5 1.45 29.0% 5 1.13 22.5% 10 2.95 29.5% 10 2.25 22.5% 20 5.95 29.8% 20 4.50 22.5% Source: Income tax law and recent announcements by the Minister of Finance. At the same time, a new investment law was ratified in March 2015 with the following key features: (1) the General Authority for Investments (GAFI) affiliated to the Ministry of Investments has been authorized -in certain sectors and activities- to go through all procedures and to obtain all needed licenses from other government entities on behalf of the investor; (2) investment procedures and the time needed for issuing investment licenses, procuring land, and obtaining utilities services have been simplified; (3) a new legal framework for dispute resolution was introduced that sets standard and clear procedures for addressing future investments disputes. The abovementioned reforms are expected to stimulate investments, to enhance attractiveness of the Egyptian economy, and to improve tax buoyancy and transparency. In the short-term, these changes can also provide additional stimulus to the ongoing economic recovery. Simplifying the investment procedures and bringing down tax rates can reduce/maintain the cost of doing business in Egypt (Figure-4), a much needed buffer given the recent and projected energy price adjustments, the higher pricing of land and utilities, and the weakening of the Pound. Reducing the effective tax rate paid by companies would ease liquidity pressures and enhance their ability to carry out new projects and increase their capital spending. In addition, the lower tax rates would make the Egyptian economy more competitive relative to peers regionally and elsewhere (Figure-4). On the individual level, the lower effective tax rate would imply higher disposable incomes that can support a more resilient and robust private consumption (Egypt’s key driver of growth). 13 Figure-4: Highest Corporate Tax Rate (Egypt vs. Peers) 40% 35% 30% 25% 20% 15% 10% Source: Egypt Ministry of Finance and KPMG-2014 report. Equally important, the new policy changes would equalize the tax treatment on all corporates across Egypt including those to be established in special economic zones. This would help to ensure fiscal optimization from new projects to be established in special economic zones (to be taxed at 22.5% instead of 10%), and hence should gradually enhance buoyancy of the income tax regime. This amendment was critical as the modality of establishing new special economic zones is likely to be widely used over the coming years and hence is projected to account for higher and growing share of Egypt’s GDP and economic activities. It is noteworthy that the government estimates that around 30-40% of Egypt’s GDP over the next 10 years would come from activities carried out in special economic zones, such as the Suez Canal region, in addition to potentially the North Coast and Upper Egypt. On the fiscal front, holding everything else constant, we expect these changes to generate positive long term gains, yet the impact in the short-term is somewhat uncertain. In the short-term (FY16), the projected pickup in economic activities and improved investment sentiment can partially counterbalance the lower effective tax rate. This is more likely if the Ministry of Finance simplifies and eases the process of paying taxes and addresses some of the current tax loopholes. Accordingly, tax receipts might increase in light of higher compliance and less tax evasion and avoidance. This happened previously in 2004 when authorities slashed corporate tax rate by half (from 40% to 20%) and at the same time simplified tax procedures and practices. These reforms stimulated economic activities and instantly led to higher tax revenues, through increasing the number of active tax payers. The private sector’s response to the recent policy reforms will largely be driven by how credible, deep, and sustained this new window of reform opportunity is. In addition, other binding constraints would need to be tackled and addressed in a timely manner to ensure that the projected higher investments and growth paths would generate adequate productive jobs, especially for the youth. This requires scaling up support and spending on enhancing human skills to nurture employment growth and to improve productivity and innovation. More resources should be directed to skills development initiatives managed by the private sector that address the current mismatch between supply and demand. In addition, other binding investments constraints should be tackled including the cumbersome and costly bankruptcy regulations that are unfavorable to businesses, and particularly SMEs as they criminalize bankruptcy by mandating jail sentences. This makes the price of failure prohibitively high and promotes a culture of risk aversion. 14 2. Macro-Fiscal Implications This section estimates the macro-fiscal impact of the recently announced policy reforms and developments. It also compares the macro framework under a ‘high case’ scenario against the situation where planned and recently announced reforms are gradually implemented, with a lagged schedule and developments/announcements are not fully implemented (‘low case scenario’). The high case scenario assumes higher FDI inflows and private investments in light of a more conducive business environment, lower individual and corporate tax rates, and improved policy certainty and transparency. This scenario projects that FDI deals signed during the Egypt Economic Conference worth US$36 billion (EGP275 billion)7 would materialize over a 6-years period, whereas the secured financing deals worth US$24 billion8 would gradually materialize over the next 5-years It is also assumed under both scenarios that the government would continue to pursue a higher public investments path to address the current infrastructure gap and to prepare the ground for a higher private investment path. Inter-linkages and implications: the higher projected investments spending and FDI inflows would lead to higher national investment ratio and capital stock and hence would provide an additional boost to real and potential growth. The lower effective tax rates would imply higher profitability at the corporate level and higher disposable income for individuals, which would jointly provide additional stimulus to private investments as well as to private consumption (Egypt’s key drivers of growth). The pick-up in private investments and consumption spending relative to the low case scenario would fuel higher imports payments bill over the medium-term, which would partially drag the higher projected growth path under this scenario. It is also assumed that the expected higher Gulf support as well as other foreign inflows (project financing, credit facilities, and FDI inflows) would improve the dynamics of Egypt’s balance of payments, ease current pressures on the pound, and more importantly avail adequate foreign currency supply to investors and the public. However, it is assumed that CBE would use most of the additional net foreign inflows over the medium-term to build up Net International Reserves (NIR) that had reached critically low levels of less than 3 months of imports by end of March 2015. Further, it is likely that the additional external investments and financing inflows would enhance domestic liquidity, hence availing more credit to the private sector at a lower cost. Outcomes: Real growth under the high case scenario is expected to gradually pick up to reach 5.4% in FY16 and 5.7% in FY18. This higher growth path compared to the low case scenario (the scenario underpinning EEM forecast) reflects elevated investment spending and higher private consumption that outweigh a higher imports bill (oil and non-oil). These positive developments would imply accelerated job creation and hence a lower unemployment path with unemployment reaching 11.8% in June-2016 before declining further to reach 10% by end of FY18 (back to rates prevailing before the 2008 global financial crisis). Inflation would remain (similar to the low case scenario) at high single digits, since demand pressures from higher economic activities is likely to be offset by higher output (hence lower supply bottlenecks) and a more proactive monetary policy. The overall 7 Key deals include British Petroleum signing an agreement to invest US$12 billion in Egypt (biggest deal in Egypt history) with the aim of producing 3 billion barrels of oil equivalent, British Gas signing an agreement to invest US$ 4 billion over the next two years, Emirati Swaidan company signing a logistics deal with the Ministry of Supply, Coca-Cola and PEPSI Co each announcing US$0.5 billion of additional investments in the coming 12-18 months, and Saudi Beyti pledging additional investments worth US$4 billion in Egypt's food industry that involves establishing a new juice factory in Beheira Governorate. 8 The WBG announced doubling its annual fresh lending to the GOE to reach US$4-5 billion over the next 4-years and the Islamic Development Bank signed government six agreements worth US$3.9 billion with the Egyptian. 15 fiscal deficit is projected to remain quite similar to the path forecasted under the low case scenario, with only a slight deterioration in the short term (due to the speedy implementation of the announced tax reforms). Thus, overall deficit is projected to reach 10.6% of GDP in FY16 (slight worse than the deficit under the baseline scenario due to slightly lower tax receipts) before reaching 9.4% of GDP in FY18. Thus, the projected deficit would remain high and unsustainable, yet the buoyancy of the tax system would improve. Further, government expenditure structure would improve (similar to the low case scenario), in light of the higher shares of investments spending, purchase of goods and services, and spending on education and health to fulfill the constitutional pledges. On the external front, the additional projected external inflows from the Gulf and private investors would improve the overall balance of payments (BoP), which is likely to record a higher surplus worth 2.1% of GDP in FY16 and 1.7% of GDP in FY18. However, the higher projected BoP surplus would mask a higher imports bill and deteriorated trade deficit, as compared to the low case scenario. Figure-5: Egypt Key Macroeconomic Indicators under both the Baseline and Program Scenarios Real GDP growth rate (y/y) Unemployment Rate (%) Low case Scenario High case Scenario Low case Scenario High case Scenario 6.0 13.5 5.0 12.5 4.0 11.5 3.0 2.0 10.5 1.0 9.5 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 Balance of Payments (% of GDP) NIR Commodity imports coverage Low case Scenario High case Scenario (months) 4.0 7.0 Low case Scenario 2.0 High case Scenario 6.0 0.0 5.0 -2.0 4.0 -4.0 3.0 -6.0 2.0 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 Source: Authors’ calculations and projections. 16 Topic-2: Macroeconomic Implications of Developments in Egypt’s Energy Sector Building on Domestic Reforms and Favorable International Conditions The energy sector in Egypt has been particularly sensitive to the political turmoil and bouts of unrest that the country has witnessed, most notably during the revolutions in 2011 and 2014. The instability has unveiled large structural and financial problems in the energy sector; thus kick-starting a vicious cycle of accumulating arrears by the Egyptian General Petroleum Corporation (EGPC) that in turn halted new investments in the sector. Electricity is highly dependent on oil and gas in Egypt, and so blackouts increased consequently, especially during the summers.9 This has had dire economic implications, since Egypt’s prosperity depends to a large extent on the availability, security and stability of energy; a sector representing around 18% of GDP in FY14, and providing more than 300,000 direct jobs, and with inter-linkages across all other sectors in the economy. This note first shows and demonstrates (numerically) the deterioration in the energy sector, and its macroeconomic implications. It then covers the Government of Egypt's responses so far to address the energy crisis, and what other outstanding challenges continue to persist. It then illustrates how the drop in international oil prices provides a marginal upside factor that has an overall positive macroeconomic impact. The note finally concludes with the social dimension; reflecting on how the poor and vulnerable are affected by the developments in the energy sector, and what is needed to protect them from the impact of energy sector reform efforts. 1. Setting the Stage: The Deteriorating Energy Sector in Egypt Total investments declined significantly since 2011, and so did the energy sector's share in this smaller pool (Figure-6a). In FY14, the sector's share reached around 23% of total investments, some 10 percentage points lower than its levels prior to FY11. The drop in public and private investments mirrors the heightened instability during FY11 and FY14 (Figure-6b). 9 It is estimated that 91% of electricity generated is derived from oil and natural gas. 17 Figure-6a: Energy Investments and Total Figure-6b: Public and Private Energy Investments to GDP Ratios Investments to Total Investments 25% 20% 18% 20% 16% 14% 15% 12% 10% 10% 8% 5% 6% 4% 0% 2% FY07FY08FY09FY10FY11FY12FY13FY14 0% Total Investments as % of GDP FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Energy Investments as % of GDP Public Private Source: Ministry of Planning, Monitoring and Administrative Reform. Furthermore, in light of the economic and political uncertainty, no new exploration agreements were signed during 2011-2013. Thus, with the ensuing liquidity crunch in the energy sector, EGPC started facing serious financial difficulties; accumulating arrears to international oil companies operating in Egypt, which reached a high of US$6.4 billion by end-FY14, before decreasing to US$3 billion as of end-March 2015, with the partial repayments made by the government. In turn, the presence of arrears hampered private investments in the sector, thus deepening the financial crunch borne by the sector (Figures 7a and 7b). Figure-7: Arrears to IOCs and Private Energy Investments Moving in Opposite Directions (7a) Arrears to International Oil (7b) Private Oil and Gas Companies (US$ billions) Investments (US$ millions) 7 6.31 6.4 8,000 7,179 7,109 6 5.4 7,000 6,046 6,000 5,519 5,357 5 5,000 4 3.17 3.1 4,000 3,357 3 3,000 2 1.33 2,000 1 1,000 0 - FY10 FY11 FY12 FY13 FY14 Dec. 14 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Petroleum and Ministry of Planning, Monitoring and Administrative Reform. These developments led to continuous energy supply bottlenecks. The pace of domestic energy production has been slow and lower than resilient demand. Oil and gas production grew at a meager 2.5% during the period 18 FY11-FY14, part of which was not dedicated to domestic consumption, but rather to exports, in addition to some process losses. Meanwhile, domestic consumption of oil and gas has increased at around 10% over the same period; notwithstanding the sluggish economic activity in Egypt. This led to widening supply-demand gaps. The oil products’ shortages were estimated at around 2.9 million tons in FY14 (Ministry of Planning, Monitoring and Administrative Reform). Also, the electricity gap at peak hours is estimated at 4500 megawatts. The energy shortages have had dire implications for Egypt’s macro economy, namely, limited production, a rising fuel subsidy bill, and a widening oil trade balance. Those are taken up next. 2. Macroeconomic Implications of the Energy Crisis GDP has been negatively impacted by the energy shortages, both directly, as oil and gas extractions became a drag on growth, as well as indirectly, through the negative effect on all industries that suffered from the outages and blackouts (Figures 8a and 8b).10 Figure-8a: Extractives' Contribution to Figure-8b: Real Growth of GDP and of Growth Extractives 1.0% 0.8% 8.0% 0.8% 6.0% 0.6% 4.0% 0.3% 0.3% 0.4% 2.0% 0.2% 0.1% 0.1% 0.0% 0.0% 0.0% -2.0% -0.2% FY07FY08FY09FY10FY11FY12FY13FY14 -4.0% -0.4% -0.4% -6.0% -0.6% -8.0% -0.8% -1.0% Extractions Real GDP Growth -0.9% Source: Ministry of Planning, Monitoring and Administrative Reform. In light of the sluggish performance of the domestic oil and gas extractives, the sector started to become a rising burden on the government budget, especially with the increasing reliance on importation since FY11, at a time when international oil prices were on the rise. (Figure-9) shows the effect of the deteriorating oil and gas production levels on Egypt’s fiscal accounts. Prior to FY11, the settlements between the Ministry of Petroleum and the budget yielded on average a balanced fiscal relation, such that the revenues from the oil sector were counterbalanced by the subsidies received by the sector from the budget. However, the energy sector's deteriorating conditions have resulted in a rising burden on the budget (Figure-9a). As such, the e fuel subsidy took up around a third of government revenues, represented a fifth of government expenditures and some 7% of GDP in FY14 (Figure-9b). 10 See Annex 3 for the distribution of fuel and electricity consumption by sector. 19 Figure-9a: Oil Sector Contribution to Fiscal Figure-9b: Fuel Subsidies and Total Deficit Expenditures 10,000 3,845 2,069 25% 671 21.3% 20.4% - 20% 18.1% 17.8% 18.0% (2,064) (1,751) in Million LE (10,000) 15% (20,000) 10% 6.7% 6.0% 6.8% 6.3% 5.4% 4.9% 6.1% (30,000) 5% (33,245) (40,000) 0% (38,778) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 (50,000) (42,948) Fuel Subsidies as % of GDP Gov. Expenditure as % of GDP Source: Authors' calculations based on Ministry of Finance. Similarly, the oil trade balance has widened, due to the conditions in the sector. Egypt switched to become a net importer of oil since FY12, as the energy supply shortages were increasingly met through higher imports (Figure 10a). On top of that, the value added component in Egypt’s oil exports continued to drop, as Egypt’s oil exports became predominantly crude oil (Figure-10b). Figure-10a: Net Petroleum Balance Figure-10b: Share of Crude Oil in Fuel Exports 7,000 80% 5,980 69.1% 6,000 70% 66.1% 5,098 63.6% 61.9% 4,912 5,000 60% 56.1% 3,973 4,000 50% 46.7%46.4% 43.6% Million US$ 2,874 3,000 40% 2,000 30% 899 1,000 20% 0 FY07FY08FY09FY10FY11FY12FY13FY14 10% -1,000 -550 -795 0% -2,000 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Central Bank of Egypt. 3. Measures Undertaken by the Egyptian Government to Address the Energy Crisis: a Comprehensive Approach The government took bold steps towards streamlining energy subsidies. In July 2014, the government raised the prices of all fuel products, with the exception of butane gas cylinders (LPG), as well as the natural gas used by households and public bakeries, in addition to fuel oil for the electricity sector. The price hikes generally ranged 20 between 12 and 8%, but were the highest for electricity and natural gas, which increased more than 140 and 170% (See tables in Annex 2). This step is expected to generate fiscal savings worth EGP44 billion (almost 2% of GDP) in FY15, and is aimed to incentivize individuals and firms to rationalize their excessive consumption and importation of fuel products, promote energy efficiency, and inhibit capital intensive industries, in addition to improve the financial position of the EGPC. This reform effort is also complemented with a plan to extend natural gas grids to households who currently depend on the costly LPG. The latter represents a win-win reform where all parties benefit from using a cheaper a more reliable, economically feasible, and cleaner source of energy. Further, the government increased electricity tariffs for residents (all consumption brackets, except the first one) and for commercial use by 25%. The government also consolidated the tariffs structure, with prices adjusting according to peak consumption hours. The fiscal savings from this step are expected to be EGP7 billion (0.3% of GDP) in FY15. Further, the government issued a decree to detail the annual electricity tariffs for various users and different blocks over 5-years; planning to reach cost-recovery by FY19. And in order to enhance efficiency and incentivize the private sector to invest in electricity generation, the government announced the feed-in tariffs of electricity generated from renewables (solar and wind power). These reform measures should help industries better plan for their investment prospects, given the announced future prices of electricity and renewables. In addition to the steps taken towards streamlining energy subsidies, the government is also attempting to increase access to adequate energy, through the importation of natural gas, and through signing new exploration agreements, which have been halted between 2011 and 2013. As such, around 38 agreements were signed since the beginning of 2014. Also, during the Economic Development Conference that was held in March 2015, Egypt signed investment deals worth US$36 billion, predominantly in the energy sector. On the governance and regulations front, the government is in the process of approving a new ‘electricity law’ which will lead to a spin-off of the transmission company, from the electricity holding company, thus setting it up as a transmission system operator (TSO). This in turn requires an executive, capacity building and restructuring effort by the sector. For the gas sector, a ‘regulator’ and a ‘gas law’ are being prepared, and a shadow regulator has been established. This should allow opening the market for gas trade. These steps will require continuing reforms in both the electricity and gas/petroleum sectors. Notwithstanding the ongoing reforms in the energy sector, one of the most pressing challenges is the need to resolve financial inter-linkages, debts and payments between different entities; mainly amongst the Ministry of Electricity and Renewable Energy, the Ministry of Petroleum and the Ministry of Finance. The figures for the internal outstanding debts amongst these entities are not exactly known. This will require a collective internal effort in each sector as well as integrated work between them. Furthermore, one emerging risk is the accumulation of contingent liabilities towards the energy sector by the Ministry of Finance, as a result of guarantees provided to Independent Power Producers. Egypt signed three projects with Independent Power Producers, that the Ministry of Finance later backed by sovereign guarantees, amounting to US$3.5 billion that could potentially be called upon if any of these projects were to run into financial difficulties. In addition, there is a growing number of Memorandums of Understanding that are being signed with a wide range of foreign power developers that are also supported by government guarantees and are leading to the accumulation of further contingent liabilities. 21 Besides the recent efforts to contain the energy crisis, international developments, especially the decline in oil prices, have provided favorable conditions, as well. Thus, the following section attempts to capture the distinctive effect of the oil price drop on Egypt’s macroeconomic indicators. 4. Oil Price Drop: Implications for Egypt The drop in the price of oil in the international markets occurred at such a critical time, when Egypt has been suffering from acute energy shortages, a soaring subsidy bill, and a widening oil trade balance. While the government has adopted initial key reform measures in the beginning of FY15 – as discussed above, including the partial streamlining of energy subsidies; projected to save around 2% of GDP, and improve energy availability – the lower oil prices are expected to give an additional boost towards addressing the above challenges. We expect the impact of the lower international oil prices to be favorable for Egypt’s growth, inflation and fiscal accounts in the short-term, but possibly unfavorable for the external accounts. Figure-11 demonstrates the direct impact of a US$10 decline in the international price of oil in FY15, holding all else constant. Figure-11: Ceteris Paribus Change in Macro-Indicators due to a US$10 Drop in Oil Price. Source: Authors’ calculations. GDP growth is expected to be boosted (by about 0.2 percentage points)11, as production accelerates with availability of more adequate access to energy, and the easing of the existing supply bottlenecks. This will come about through lower international transportation costs, as well as the ability to afford larger amounts of imported oil by the government and the private sector. While non-oil exports are also expected to benefit, this may be counterbalanced by the rising non-oil merchandise import bill, in tandem with the economic uptick. The demand- side of GDP may be positively affected by the lower prices, mainly through the second round effects as incomes and profits start increasing, and as the political and social conditions improve especially if the coming summer witnessed fewer blackouts and outages. 11 In this part, we try to capture the additional change in the respective macro-indicators, due to the impact of the oil price drop. For example, GDP growth was expected to be around 4% in FY15. But due to the lower international oil prices, GDP growth is expected to be at least 4.2%. 22 Inflation should be contained on the back of the declining oil prices (likely to decline by 0.4 percentage points); an upside factor to relative food security. The lower international oil prices are expected to be reflected into a lower oil import bill, which will further benefit from the lower international shipping and transportation costs. The latter is also expected to curb food prices, which constitute more than 40% of consumer prices. Additionally, since firms will be operating at a better capacity, thus domestic prices may fall, as supply is enhanced. Egypt’s fiscal accounts are also expected to benefit from the decline in the international oil prices, although meagerly (by around 0.12% of the FY15 GDP).12 On the one hand, a US$10/barrel decline in the international oil prices will lead to a decrease in the imported portion of the fuel subsidy bill (that is around 50%); with fiscal savings estimated at some 0.2% of the FY15 GDP. This however will be watered-down by the decline in the revenues to the budget in the form of taxes and dividends, resulting from the non-subsidized activities of EGPC. The external accounts are expected to suffer slightly negative consequences (with a widening overall deficit by around 0.3% of FY15 projected GDP). Egypt has become a net oil importer since 2012. The upshot of the decline in international oil prices thus is a lower oil trade deficit (especially that crude oil represents 22% of Egypt’s total petroleum imports). The downside however, is that Egypt may receive less remittances, mainly as the Gulf countries (the source of around 75% of Egypt’s remittances) bears the negative consequences of the oil price shock. A 5% decline in remittance inflows from Gulf countries implies foregone receipts worth US$0.7- 0.8 billion; 0.25% of FY15 projected GDP. This might not fully materialize in the short term, but if prices prevail at lower levels over the medium-term, companies in the Gulf may start adjusting their cost structure, including cuts to employment and wages. Furthermore, tourism may well be negatively affected, as Russian and Gulf tourists start decreasing their spending on such arguably dispensable expenditures. Moreover, FDI into the oil and gas sector (representing around 50% of total FDI inflows) might be also adversely impacted. However, we project this channel to be contained, in the short term, unless the oil price decline is sustained over the medium term. 5. The Social Implications of Developments in the Oil Sector The energy shortages since 2011 have created disruptions in economic activity, which in turn have had negative social implications, notably due to the rising unemployment rates. This negative effect may start abating following the recent energy sector reforms. The government’s decision to reform the energy price structure, and gradually phase out fuel and electricity subsidies are expected to avail some fiscal space and can pave the way for the government to adopt a more efficient and better targeted social safety net, and allocate resources towards more productive public spending, including on infrastructure. The reforms may also help rationalize excessive energy consumption, and can stimulate labor-intensive activities, and promote more efficient use of energy. This in turn is expected to have spillover effects on overall production levels, with the more adequate access to energy, and will help create employment. But while these reforms are necessary to bring Egypt back on a fiscally sustainable path, they will undoubtedly affect people both directly (through fuel and electricity consumption) as well as indirectly (through second round effects of higher energy prices, and economy-wide inter-linkages). The lion’s share of the energy subsidies accrue to the non-poor in Egypt. About 56% of the energy subsidies (fuels and electricity) went to the top 40% of the population in FY13. 13 Also, energy consumption patterns differ across the various income segments: Electricity is almost equally important for all quintiles, but fuel products’ consumption varies. 12 The fiscal outturns of the first seven months of FY15 show a decline in the fuel subsidy bill by around 30%. 13 World Bank. 2014. Policy Brief: Energy Subsidy Reforms in Egypt. Mimeo. 23 Households in the richest quintile spend a larger proportion of their energy budget on transportation fuels compared to households in poorer quintiles. By contrast, households in poorer quintiles spend more on LPG Figure-12: Energy Consumption Patterns across Quintiles Source: World Bank, based on Household Income, Expenditure and Consumption Survey 2012/13. Mimeo. So far, given that the recent reforms did not touch LPG prices, as well as natural gas for households and bakeries, the direct poverty impact is expected to be relatively contained, but not totally negligible. Holding all else constant, it is estimated that the upward adjustments to energy prices in July 2014 may have pushed some 400,000 people below the poverty line.14 However, the effect of the price increases cannot be unambiguously determined in separation from other developments, such as the recently moderating inflation rates, and the government stimulus that involved raising employees’ compensations. Further, the collapse in the international oil prices also provides a downside factor that has curbed imported inflation in Egypt. Therefore, the overall impact on the poor and vulnerable is unclear. The fiscal savings from the energy subsidy reforms will be partly used to restructure public expenditures to benefit the needy, and to meet the new constitution’s pledges. The government is allocating around EGP22 billion (around 43%) of the fiscal savings from the energy subsidy reform to health and education. Budget allocations to health, as well as pre-university and university education are expected to increase to 3%, and 6% of GDP, respectively by FY17. In addition, another EGP5 billion (around 10%) of the fiscal savings will be directed to scale up social protection. The government is developing well-targeted cash transfers; a conditional program (Takafol or solidarity) and an unconditional one (Karama or dignity); seeking to cover 1.5 million beneficiaries by end-2017. The first phase of these cash transfer programs are currently being rolled out; targeting the governorates with poverty rates higher than 60%. In addition to the geographical targeting, a proxy means testing method is used to ensure selecting the neediest. This estimation relies on the World Bank staff’s calculations based on a Computable General Equilibrium Model, and the 14 Household Income, Expenditure and Consumption Survey 2012/13 data. 24 For the medium term, Egypt needs to continue developing a “national” cash transfer, supported by a unified national registry, prior to aggressive subsidy reform. This is needed to ensure appropriate identification for the protection of the poor and vulnerable from the direct and indirect effects of price increases. At this time, Egypt’s ration card system has robust baseline information on 19 million households, benefiting from the food subsidy program, but the program is largely untargeted. The ration card system database (known as the family smart card database) offers an opportunity to identify the largest possible segment of the poor and vulnerable population from this comprehensive database and to dispense cash transfers more readily. Furthermore, to ensure energy conservation and adequacy, more diversity and efficiency in the use of energy is needed, notably in transport, energy-intensive industries and households. 25 X- ANNEXES Annex 1: Egypt’s Macroeconomic Projections (Baseline Scenario) Annex-1: Egypt Macroeconomic Projections (Baseline Scenario) 2010 2011 2012 2013 2014 2015 2016 2017 MARCH 15 2015 Actual Actual Actual Actual Preliminary Forecast Forecast Forecast Real Sector and Prices GDP at market prices (EGP bn) 1,207 1,371 1,575 1,753 1,996 2,318 2,683 3,098 GDP at market prices (USD bn) 218.9 236.0 257.3 271.8 286.4 310.8 344.2 382.2 Real GDP Growth Rate (y/y) 5.1 1.8 2.2 2.1 2.2 4.3 4.7 5.0 Deflator ( y/y) 10.11 11.74 12.60 9.1 11.5 11.8 11.0 10.5 National Investment ratio (% of GDP) 17.80 17.10 16.40 14.20 14.05 15.31 15.85 16.54 Unemployment Rate (End of period) 9.2 11.8 12.6 13.34 13.3 12.7 12.1 11.4 CPI Annual Inflation Rate, (Period Average, y/y) 11.7 11.0 8.6 6.9 10.1 11.0 10.5 9.9 364-day T-bill interest rate (period average) 10.5 11.5 14.8 14.4 12.0 12.2 11.9 11.7 91-day T-bill interest rate (period average) 9.9 11.5 13.1 13.3 10.9 11.5 11.2 11 Public Finance Total Revenues (% of GDP) 22.2 19.3 19.3 19.7 22.9 21.8 21.7 21.5 Total Expenditures (% of GDP) 30.3 29.3 29.9 33.2 35.1 33.1 32.2 31.5 Overall budget deficit (% of GDP) 1/ 8.1 9.8 10.6 13.7 12.8 11.3 10.5 10.1 Primary deficit (% of GDP) 2.1 3.6 4.0 5.3 4.1 0.9 2.8 2.2 Gross Domestic Budget Sector debt (% of GDP) 67 70.5 74.9 82.4 86.9 87.8 87.7 87.2 Underlying budget deficit after excluding exceptional receipts (% of GDP) 8.1 9.8 10.6 13.7 17.2 12.3 11.4 10.9 Government Saving Ratio = Revenues less current Expenditure (% of GDP) -4.1 -7.1 -8.3 -11.4 -9.6 -5.6 -7.3 -6.6 Energy Sector Fuel Subsidies (EGP bn) 66.5 67.7 95.5 120.0 126.2 80.2 86.0 84.0 Fuel Subsidies (% of GDP) 5.5 4.9 6.1 6.8 6.3 3.46 3.09 2.71 Fuel subsidies (% of total Expenditures) 18.2 16.8 20.3 20.6 18.0 10.5 10.0 8.6 Arrears due on EGPC (USD bn) N.A. N.A. N.A. 5.4 5.9 2.0 0.0 0.0 Petroleum Trade Balance (USD bn) 5.10 2.87 -0.55 -0.5 -0.8 -0.9 -1.2 -1.4 Total Petroleum Imports (USD bn) 5.16 9.26 11.77 12.5 13.2 13.6 14.0 14.5 Total Petroleum Exports (USD bn) 10.3 12.1 11.2 12.0 12.5 12.6 12.8 13.1 Price of crude oil (Brent , USD) 2/ 79.6 111.3 111.7 105.8 101.8 80 80 85 External Sector Trade Balance (% of GDP) -11.5 -11.5 -13.3 -11.6 -11.8 -11.4 -10.9 -10.5 Current Account Balance (% of GDP) -2.0 -2.6 -3.1 -2.1 -0.8 -3.4 -3.2 -2.6 Net Foreign Direct Investment inflows (% of GDP) 3.1 0.9 1.5 1.1 1.5 1.9 2.3 2.5 Capital and Financial Account Balance (% of GDP) (does not include errors & omissions) 4.1 -1.8 0.4 3.6 1.7 3.8 4.3 3.3 Overall Balance of Payments (% of GDP) 1.5 -4.1 -4.4 0.1 0.5 0.3 1.0 0.6 NIR liquid Coverage (End of period, months of merchandise imports) 8.6 6.3 3.2 3.1 3.3 3.3 3.9 4.1 External Debt (% of GDP) 15.4 14.8 13.4 15.9 16.1 16.3 17.0 15.3 External Government Debt (% of GDP) 12.0 11.5 9.9 10.5 10.1 9.3 8.8 8.5 Monetary Sector Broad Money Annual growth rate (period average) 10.4 10 8.4 18.4 17.0 21.7 23.6 24.6 Private Sector Credit Annual growth rate (period average) 7.7 0.8 7.3 9.8 7.4 9.3 13.0 14.5 Private Sector Credit Annual real growth rate (period average) -4.0 -10.2 -1.3 2.9 -2.7 -1.8 2.5 4.6 N.A. Data is not available. Projected deficit figures assume that the constitutional pledges will be realized by end FY17. This entails additional fiscal burden of around 1-1.5% of 1/ GDP assuming that the government will (a) use 3-years average GDP to calculate spending targets/ceilings and (b) will redefine government total spending on heath and education sectors to capture current spending by other entities (Ministry of Defense, Ministry of Interior, Al-Azhar University, 2/ US. Energy Information Administration 3/ Drop in NIR despite BoP surplus due to Gold Revaluation losses 26 Annex 2: Egypt Summary Tables Egypt, Arab Rep. at a glance 2/22/15 M . East Lo wer Ke y D e v e lo pm e nt Indic a t o rs & No rth middle Egypt A frica inco me Age distribution, 2012 ( 2 0 13 ) Male (..) Female (..) P o pulatio n, mid-year (millio ns) 82.1 340 2,507 75- 79 Surface area (tho usand sq. km) 1,001 8,775 20,742 60- 64 P o pulatio n gro wth (%) 1.7 1.7 1.5 Urban po pulatio n (% o f to tal po pulatio n) 44 60 39 45- 49 30- 34 GNI (A tlas metho d, US$ billio ns) 259.0 1,113 4,745 15- 19 GNI per capita (A tlas metho d, US$ ) 3,160 3,450 1,893 GNI per capita (P P P , internatio nal $ ) 6,450 7,062 3,877 0-4 10 5 0 5 10 GDP gro wth (%) 2.1 1.9 4.7 percent of total population GDP per capita gro wth (%) 0.4 0.2 3.2 ( m o s t re c e nt e s t im a t e , 2 0 0 5 – 2 0 12 ) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) <2 2 27.1 Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 15 12 56.3 Life expectancy at birth (years) 71 71 66 90 Infant mo rtality (per 1,000 live births) 18 21 46 80 Child malnutritio n (% o f children under 5) 7 6 24 70 60 A dult literacy, male (% o f ages 15 and o lder) 82 85 80 50 A dult literacy, female (% o f ages 15 and o lder) 66 70 62 40 Gro ss primary enro llment, male (% o f age gro up) 116 109 107 30 Gro ss primary enro llment, female (% o f age gro up) 1 11 101 104 20 10 0 A ccess to an impro ved water so urce (% o f po pulatio n) 99 90 88 1990 1995 2000 2012 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 96 87 47 Egypt, Arab R ep. Middle East & N orth Afr ica a N e t A id F lo ws 19 8 0 19 9 0 2000 2 0 13 (US$ millio ns) Net ODA and o fficial aid 1,386 6,057 1,371 1,807 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2012): Euro pean Unio n Institutio ns 32 48 73 769 8 France 33 140 242 140 6 Germany 107 347 65 103 4 A id (% o f GNI) 6.5 14.4 1.4 0.7 2 A id per capita (US$ ) 31 108 21 22 0 Lo ng- T e rm E c o no m ic T re nds -2 95 05 Co nsumer prices (annual % change) .. 21.2 2.8 9.4 GDP implicit deflato r (annual % change) 18.0 18.4 4.9 9.0 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) 0.7 2.2 3.4 6.4 Terms o f trade index (2000 = 100) .. 108 100 96 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 13 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 44.9 56.3 66.1 82.1 2.3 1.6 1.7 GDP (US$ millio ns) 22,912 43,130 99,839 271,973 5.4 4.4 4.7 (% o f GDP ) A griculture 18.3 19.4 16.7 14.5 2.7 3.1 3.3 Industry 36.8 28.7 33.1 39.2 3.3 5.1 5.1 M anufacturing 12.2 17.8 19.4 14.5 .. 6.3 4.4 Services 45.0 52.0 50.1 46.3 7.8 4.1 5.0 Ho useho ld final co nsumptio n expenditure 69.2 72.6 75.9 81.2 3.6 3.8 4.4 General go v't final co nsumptio n expenditure 15.7 11.3 11.2 11.7 3.1 4.4 3.0 Gro ss capital fo rmatio n 27.5 28.8 19.6 14.2 0.0 5.8 6.0 Expo rts o f go o ds and services 30.5 20.0 16.2 17.6 5.2 3.5 11.0 Impo rts o f go o ds and services 42.9 32.7 22.8 24.7 -2.0 3.0 10.5 Gro ss savings .. .. .. .. No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. a. A id data are fo r 2012. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 27 Egypt, Arab Rep. B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 13 Governance indicators, 2000 and 2012 (US$ millio ns) To tal merchandise expo rts (fo b) 6,388 28,151 Voice and accountability To tal merchandise impo rts (cif) 17,860 50,503 Net trade in go o ds and services -6,774 -7,552 Polit ical stability Current acco unt balance -1,163 -3,843 Regulat ory quality as a % o f GDP -1.2 -1.4 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 2,852 19,236 Control of corruption Reserves, including go ld 15,161 22,638 0.0 25.0 50.0 75.0 100.0 2012 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 21.6 21.4 Tax revenue 14.6 14.3 Current expenditure 20.5 19.2 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 12 Overall surplus/deficit -3.9 -9.1 P aved ro ads (% o f to tal) 78.0 92.2 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 34 20 subscribers (per 1 00 peo ple) 10 131 Co rpo rate .. 20 High techno lo gy expo rts (% o f manufactured expo rts) 0.3 0.6 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 29,178 38,338 A gricultural land (% o f land area) 3 4 To tal debt service 1,837 5,765 Fo rest area (% o f land area) 0.1 0.1 Debt relief (HIP C, M DRI) – – Terrestrial pro tected areas (% o f land area) 4.3 11.2 To tal debt (% o f GDP ) 29.2 14.1 Freshwater reso urces per capita (cu. meters) 26 23 To tal debt service (% o f expo rts) 8.9 9.2 Freshwater withdrawal (% o f internal reso urces) 3,794.4 3,794.4 Fo reign direct investment (net inflo ws) 1,235 .. CO2 emissio ns per capita (mt) 2.1 2.6 P o rtfo lio equity (net inflo ws) 269 .. GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 6.9 5.9 Composition of total external debt, 2012 Energy use per capita (kg o f o il equivalent) 615 978 IBRD, 3,109 IDA, 1,230 Short-term, IMF, 1,381 6,657 Wo rld B a nk G ro up po rt f o lio 2000 2 0 12 Private, 3,273 (US$ millio ns) Other multi- lateral, 6,102 IB RD To tal debt o utstanding and disbursed 639 3,109 Disbursements 6 392 P rincipal repayments 87 74 Bilateral, Interest payments 41 45 18,248 US$ millions IDA To tal debt o utstanding and disbursed 1,266 1,230 Disbursements 49 7 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 12 To tal debt service 32 70 Time required to start a business (days) – 8 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 10.2 To tal disbursed and o utstanding po rtfo lio 163 883 Time required to register pro perty (days) – 73 o f which IFC o wn acco unt 163 771 Disbursements fo r IFC o wn acco unt 25 303 Ranked as a majo r co nstraint to business 2000 2 0 12 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 14 35 n.a. .. 80.0 n.a. .. 63.8 M IGA Gro ss expo sure 0 150 Sto ck market capitalizatio n (% o f GDP ) 28.8 22.1 New guarantees 0 150 B ank capital to asset ratio (%) 5.6 6.3 No te: Figures in italics are fo r years o ther than tho se specified. 2/22/15 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 28 Millennium Development Goals Egypt, Arab Rep. With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) E gypt , A ra b R e p. G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 12 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) 4.5 2.5 <2 <2 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. .. 16.7 25.2 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) 8.7 9.5 9.0 9.2 P revalence o f malnutritio n (% o f children under 5) 10.5 10.8 4.3 6.8 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. 91 94 95 P rimary co mpletio n rate (% o f relevant age gro up) .. 93 97 107 Seco ndary scho o l enro llment (gro ss, %) 73 74 86 86 Yo uth literacy rate (% o f peo ple ages 1 5-24) .. 73 .. 89 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 81 88 92 97 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) 21 1 9 19 18 P ro po rtio n o f seats held by wo men in natio nal parliament (%) 4 2 2 2 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 86 64 45 21 Infant mo rtality rate (per 1,000 live births) 63 49 36 18 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 86 89 98 93 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 120 96 75 50 B irths attended by skilled health staff (% o f to tal) 37 46 61 79 Co ntraceptive prevalence (% o f wo men ages 1 5-49) 48 48 56 60 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) 0.1 0.1 0.1 0.1 Incidence o f tuberculo sis (per 100,000 peo ple) 34 32 26 17 Tuberculo sis case detectio n rate (%, all fo rms) 11 58 63 62 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 93 95 96 99 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 72 79 86 96 Fo rest area (% o f land area) 0.0 0.1 0.1 0.1 Terrestrial pro tected areas (% o f land area) 0.4 2.0 4.3 11.2 CO2 emissio ns (metric to ns per capita) 1.3 1.6 2.1 2.6 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 5.7 6.2 6.9 5.9 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 2.8 4.4 8.3 10.6 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 2.1 119.9 Internet users (per 1 00 peo ple) 0.0 0.0 0.6 44.1 Ho useho lds with a co mputer (%) .. .. .. 37.9 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 140 100 120 75 100 75 80 50 50 60 25 40 25 0 20 2000 2005 2010 0 0 1990 1995 2000 2012 2000 2005 2010 Primar y net enrollm ent ratio Fixed + mob ile subscr iber s Ratio of girls to boys in pr ima ry & secondar y Egypt, Arab R ep. Middle East & N orth Afr ica education Inter net users No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 2/22/15 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 29 Annex 3: Consumption of Energy Products by Sector. Source: Ministry of Petroleum. Source: Ministry of Petroleum. Source: Ministry of Electricity and Renewable Energy. 30 Annex 4: Energy Prices Table A: Petroleum Prices Product New Unit Sector Old price Price Iron - Copper - Aluminum - Glass – Ceramics 4 7.00 Fertilizer - Petrochemicals 4 4.50 Cement 6 8.00 $/mmbtu Brick - Engineering - Chemicals - Food - 4 Medicines – Fabric 5.00 Natural Gas Electricity – BOOT 1.1 3.00 Cars 0.45 1.10 Residential 1 0.4 0.40 EGP / M3 Residential 2 1 1.00 Residential 3 1.5 1.50 Bakeries 0.14 0.14 80 0.9 1.60 Gasoline EGP / Liter 92 1.85 2.60 95 5.75 6.25 Food Industry 1000 1400 Cement 1600 2250 Fuel Oil EGP / Ton Electricity 2300 2300 Others 1,500 1950 All Sectors 1.1 1.80 Diesel EGP / Liter 66% of Tourism Sector 1.1 1.80 Residential 1 8 8 LPG EGP / C Commercial 16 16 Table B: Electricity Prices Residential (PT/kWh) Old Price New price up to 50 5 7.5 51-100 12 14.5 0-200 16 201-350 19 24 351-650 29 34 651-1000 53 60 above 1000 67 74 Commercial (PT/kWh) Old Price New price 0-100 27 30 0-250 41 44 251-600 53 59 601-1000 67 78 above 1000 72 83 31