Stable dollar exchange rate in Egypt buffers oil price hikes

CAIRO – 6 December 2017: The Egyptian government saved around LE 4 billion from its budget in the first quarter (Q1) of fiscal year 2017/18 as it spent LE 23.7 billion on petroleum subsidies, Minister of Petroleum Tarek El-Molla announced Wednesday.

The value spent is lower than the expectations for Q1, which was LE 27.5 billion in the state budget, Molla added in a statement.

Economic analysts expected that the government would face an issue in securing finance for its petroleum spending due to a rise in international Bent prices, which now stand at $62.07 per barrel. The concern came as the government calculated the international Brent prices in the current state budget at $55 per barrel.

The saving apparently came because the petroleum subsidies calculations put the U.S. dollar exchange rate at LE 17.7, while it actually recorded an average of LE 17.6 in Q1.

Molla gave a breakdown of petroleum expenditures as follows:
• LE 5.7/liter for diesel sold at LE 3.65/liter for consumers
• LE 5.7/liter for 80-octane gasoline sold at LE 3.65/liter
• LE 6.6/liter for 92-octane gasoline sold at LE 5/liter
• LE 124 for LNG cylinders sold at LE 30/cylinder
• LE 4,300 for each fuel oil ton sold at LE 3,500 for cement factories and at LE 2,100 for other industries

As Brent prices started to see increases in early November, the Egyptian government was anticipated to increase its allocations for petroleum subsidies, put at LE 110 billion in fiscal year 2017/18.

This is not the first time international oil prices put Egypt in a difficult situation. Last fiscal year, the unexpected rise in Brent prices had put the Egyptian Ministry of Petroleum in a tight position as it had to request additional allocations from the Ministry of Finance in order to meet its needs.

In fiscal year 2016/2017 budget, fuel subsidies were set at LE 35 billion based on the then Brent prices of $40 per barrel. But with that price increasing to above $50, the Petroleum Ministry exceeded its allocations, spending between LE 75-80 billion on the subsidies.

The deficit was exacerbated by the flotation of the Egyptian pound in November 2016, doubling the U.S. dollar exchange rate from LE 8.88 per dollar to the current average rate of LE 17.60.

Egypt's government is targeting boosting its daily production of crude oil and condensates to 36 million tons.