Problem

Fuel shortages had been central to Egypt's economic crisis in 2013, with 22% ($21 billion) of the state budget going into fossil fuel subsidies, equivalent to 6% of national GDP. The subsidies disproportionately favoured wealthier people, who consumed more petroleum products: in urban areas for example, the wealthiest 20% of the population received eight times more subsidies in absolute terms than the poorest 20%.

In 2014, political upheaval and economic difficulties due to slowing GDP, increasing unemployment, and a national budget deficit, forced the Egyptian Government to reform its longstanding fossil fuel subsidies.

Responses

In July 2014, the Egyptian Government implemented wide-ranging subsidy reform for the first time in decades, cutting around a third of fuel subsidies in the annual budget and raising the prices of gasoline (by 78%), diesel (by 64%), kerosene (by 64%), and several other petroleum products. The aim was to free up fiscal space to address rising unemployment and slowing growth.

The Government also adopted several new social protection measures to offset the disproportionate impact of the higher fuel prices on lower-income families: extending and diversifying national food subsidies, two stimulus packages, expansion of social security pensions, and increased wealth taxes. Utilising financial support to implement social policies with immediate effect and tangible results, paired with transparent and inclusive communication strategies about the urgency and positive long-term effect of the price increases, were reportedly crucial in fostering cohesion both within Government and the population.

Find out more: World Resources Institute, International Institute of Sustainable Development, Climate Action Tracker