05 July 2014, News Wires – Egypt has drastically raised fuel prices overnight to tackle a bloated subsidy system, in a potentially unpopular move that might blow back on newly elected President Abdel Fattah al-Sisi.
With the economy battered by three years of unrest, successive governments have said the subsidies that allowed Egyptians to buy gasoline at some of the world’s cheapest prices must be lifted.
Ex-army chief Sisi, elected by a landslide in May, has advocated austerity to narrow the budget deficit, and a severe law and order platform to rein in Islamist supporters of ousted president Mohamed Morsi.
Morsi himself had balked at implementing the cuts, to avoid stoking unrest, but the military ousted the divisive leader anyway after millions took to the streets demanding his resignation.
With the main Islamist opposition decimated, Sisi appears set on leveraging his popularity to ram through politically risky measures that foreign donors say are crucial to reforming a decrepit subsidy system.
The government raised the price of 92 octane gasoline from 1.85 Egyptian pounds ($0.36/27 euro cents) a litre to 2.60 pounds, and 80 octane gas from 0.90 pounds to 1.6 pounds a litre, the official MENA news agency reported.
The price of diesel was raised from 1.1 pounds to 1.8.
The increase took effect at midnight Friday.
The state spends more than 30 percent of its budget on fuel and food subsidies, in a country were nearly 40 percent of the population — some 34 million people — hover around the poverty line.
-Subsidies for the needy-
Prime Minister Ibrahim Mahlab said in comments aired on television that the increase would not affect food prices or hit the poor.
“Those most affected have cars, two cars or a big vehicle, but those who use microbuses will not be affected, and those are the ones I want to protect,” he said without elaborating, referring to a common form of transportation among lower income Egyptians.
“Part of the subsidies (saved by the cuts) will go to services for those most in need,” he said.
Sisi has preached a message of self sacrifice to restore the economy.
He has launched a donation drive and announced he would give away part of his salary and personal wealth, while urging Egyptians to bike and walk more to save on gas.
The economy has been propped up by billions of dollars in Gulf Arab state aid since the overthrow of the Morsi, whom regional powerhouses such as Saudi Arabia and the United Arab Emirates viewed with suspicion.
The government has also signed off on a capital gains tax and said it would gradually raise electricity prices over the next five years.
Sisi won the May election by about 97 percent of the vote against a weak leftist candidate, and many view him as a strong leader who can kickstart a recovery.
But Morsi’s Muslim Brotherhood movement still holds near daily protests it hopes will grow with increasing economic discontent.
The group has been battered by a crackdown that killed at least 1,400 people, mostly Islamists, in street clashes and imprisoned more than 16,000 people.
More than 200 Islamists and alleged supporters have been sentenced to death in mass trials. On Saturday, the court that sentenced Brotherhood leader Badie to life confirmed 10 death sentences, nine of them in absentia.
The unrest, and militant attacks that have killed scores of policemen and soldiers, have roiled the economy.
An early 2011 uprising that ousted veteran dictator Hosni Mubarak sent the economy into a downward spiral, with the tumult scaring away tourists and foreign investors.
The country had just began to recover when the military, prompted by huge protests, overthrew Morsi in July last year.