Egypt hopes to save billions, build surplus as oil prices stay low

World Today

Oil prices have continued to drop and are expected to remain around $60 a barrel into 2015. Major exporters are paying a heavy price as a result, but the impact on net importers, like Egypt, is difficult to evaluate. CCTV’s Adel El-Mahrouky reported this story from Cairo.

Egypt hopes to save billions, build surplus as oil prices stay low

Oil prices have continued to drop and are expected to remain around $60 a barrel into 2015. Major exporters are paying a heavy price as a result, but the impact on net importers, like Egypt, is difficult to evaluate. CCTV's Adel El-Mahrouky reported this story from Cairo.

After increasing petroleum prices in the summer, Egypt saved about $6 billion of its $17 billion annual subsidies expenses. If the current prices remain steady throughout the financial year, Egypt could save over $4 billion more.

But citizens will not see any change in price, and the government intends to keep the difference as surplus in the budget.

“The price drop is not that simple on Egypt. We export and at the same time import from our foreign partners. We have fixed contracts so for us, petroleum prices don’t fluctuate like the global market, but in the extra shipments, we buy with the international prices day by day,” petroleum ministry affairs specialist Kamal Amer said.

“So for the regular citizen he won’t feel any differences in prices, because the government partially subsidies products by at least one third of the price,” he said. “Except octane 95. It has no subsidies, but it won’t get cheaper.”

There are numerous factors that could deplete the surplus. The international prices will decrease revenue from petroleum exports. The global effect on Egypt’s partners could reflect on the economy as well.

Many expect Russia’s economic stagnation could negatively impact the number of tourists coming to Egypt: Russians represent the largest portion of Egypt’s annual visitors.

Gulf countries’ aid to Egypt may also decrease. They have already begun moving from pure financial support to investments, which is expected to freeze if the low oil prices are sustained.

“The aid from gulf countries, like Saudi Arabia, Kuwait, and Bahrain, depends on the surplus they have,” Amer said. “Some fear that this bundle of financial support to Egypt could in one way or another be affected. But it seems that they are sending message to comfort Egyptians that there should be no change in the aid.”

A surplus in the budget should decrease the internal debt and increase Egypt’s Fitch credit ratings, qualifying Egypt for more chances of securing foreign loans.

Analysts expect the end result would be a maximum of $6 billion surplus in the budget. The expected losses in tourism and decreased Gulf aid could reach $6 billion as well. It could also require pressure on the Egyptian pounds conversion rate to the U.S. dollar.