Egypt is set to abolish fuel subsidies within three to five years in a bid to reduce its spiraling budget deficit, a senior minister told Al Arabiya.
The government has already ended subsidies on 95-octane gasoline, and plans to cut subsidies on lower-octane fuel over the next few years to prevent the provision of cheap fuel further crippling the economy.
Osama Kamal, the Egyptian minister of petroleum and mineral resources, said in an interview with Al Arabiya that the subsidies on petroleum products would be lifted as early as 2016.
“Subsidies will be totally lifted within three to five years,” he said.
The minister said he expects the size of subsidies on petroleum products to reach 120 billion Egyptian pounds ($17.5bn) in the current fiscal year, a vast increase on the previous forecast of 70 billion pounds.
Kamal said this was partly due to the depreciation of the Egyptian pound.
"Without implementing rationing measures, in the 2012-2013 financial year the cost of subsidizing petroleum products will exceed 120 billion [Egyptian pounds] for two reasons. The first is the change in the exchange rate of the Egyptian pound, and the second is the large increase in consumption,” he said.
Kamal warned that this figure could grow to 135 billion pounds in the next fiscal year if preventative measures are not taken.
“Subsidies increased in a worrying manner in the past five years when compared with the growth rates,” he said. “There is a 10 percent increase in demand on subsidies which is met by only 2.5 percent increase in growth.”
Egypt is also phasing out subsidies for bread, other basic foodstuffs and oil according to a similar timeline, Kamal has said previously.
Egypt plans to ration the cheap fuel i t provides before it cuts energy subsidizes altogether.
Kamal said fuel-rationing cards will be introduced in July as the government looks to fight rampant smuggling of subsidized diesel and gasoline.
“The new financial year [on July 1] is when fuel coupons for vehicles [will be introduced],” he said.
“The aim of these liquid-fuel coupons is to limit smuggling and let subsidies reach those who deserve them.”
The minister said around 15 to 20 percent of fuel is being smuggled outside Egypt because of higher prices in neighboring countries.
Rations on subsidized diesel and gasoline will limit the amount of fuel motorists can buy at the cheaper prices.
The Egyptian government is undergoing an ambitious strategy of tax increases and subsidy cuts as it looks to unlock a $4.8 billion loan from the IMF.