Suchergebnisse

This paper examines the short- and long-run economic impact of Egypt's energy subsidy reform in July 2014 (without and without compensating transfers for the bottom 40 percent of the income distribution) and the decline in global energy prices, as well as the long-run impact of phasing out the energy subsidies over a 5 year period. The analysis uses a Computable General Equilibrium model with 56 productive sectors, including 11 energy subsectors. The short-run analysis employs a two-stage factor market adjustment, with wages first fixed and then flexible. The long-run analysis is run in a recursive dynamic mode, capturing the impact of improved productivity and increased investment resulting from more efficient allocation of resources and reduction in government deficits. In the short run, the 2014 reforms lead to slightly lower consumption while investment increases strongly and production shifts from highly subsidized energy-intensive sectors such as energy, water and sanitation, and transport to other sectors (notably construction). The impact on overall consumer prices is limited. In the longer run, real GDP growth increases by about one percentage point relative to the baseline before the 2014 reform.

Egypt is in a precarious economic situation reflecting a difficult external environment, political uncertainty, and weak economic policies. International reserves have been declining rapidly to a low level, driven by a sizeable current account deficit and large capital outflows. Large spending increases are driving up the fiscal deficit to unsustainable levels, with high real interest rates and weak growth adding to the mounting debt burden. And weak growth is fueling social pressures. Strong financial support from Arab bilateral donors has been holding the country afloat so far, but the leaking cannot continue much longer and the authorities have been forced to seek support from the International Monetary Fund (IMF) and other donors. Egypt is in a precarious economic situation reflecting a difficult external environment, political uncertainty, and weak economic policies. International reserves have been declining rapidly to a low level, driven by a sizeable current account deficit and large capital outflows. Large spending increases are driving up the fiscal deficit to unsustainable levels, with high real interest rates and weak growth adding to the mounting debt burden. And weak growth is fueling social pressures. Strong financial support from Arab bilateral donors has been holding the country afloat so far, but the leaking cannot continue much longer and the authorities have been forced to seek support from the IMF and other donors.