Egypt’s new budget: Electricity subsidies boosted by 2900% alongside slashes to fuel subsidies

The Egyptian government plans to cut spending on fuel subsidies by more than 51 percent, a Cabinet statement on the draft budget for the coming fiscal year said.

In turn, the government will increase its spending on electricity subsidies by 2,900 percent — from LE2.5 billion in FY 2024/5 to LE75 billion in FY 2025/6 — according to the statement released last week, when the Cabinet approved the new budget and referred it to Parliament for review.

The shift in allocations comes as the government grapples with rising energy costs, with the national production deficit driving up spending on natural gas and petroleum fuel imports.

At the same time, with the International Monetary Fund pushing for a gradual phase out of fuel subsidies under its ongoing loan program with Egypt, the government is facing pressure to cut spending on the program that has shielded the public and industry from the rising costs.

Ministers have signalled their assent to the cuts, with Prime Minister Mostafa Madbuly repeatedly stating that his Cabinet plans to completely phase out the subsidies by the end of the calendar year — midway through the new fiscal year beginning in June.

He confirmed the strategy in a press conference after last Wednesday’s Cabinet meeting, stating that fuel price increases will be implemented gradually until the subsidy is fully eliminated.

But fuel costs are steadily rising, House Budget and Planning Committee member MP Mohamed Badrawy told Mada Masr, citing the state’s growing reliance on imported liquefied natural gas rather than domestically produced gas, which previously covered a larger share of national demand. Additionally, the depreciation of the Egyptian pound over the past year has further increased the cost of supplying gas to generate power, he said.

As a result, the Electricity Ministry faces higher costs when purchasing supplies from the Petroleum Ministry to generate power, Badrawy said. Rather than exposing the public and business to the cost of liberated energy prices all at once, the electricity subsidies for the coming fiscal year reflect the government’s expenditure plan to cover the gap between the prices it guarantees consumers and the cost of generating power.

"This doesn’t mean the Electricity Ministry will maintain current electricity prices for consumers while bearing the full cost difference,” Badrawy explained. “The more likely scenario is that the government will raise electricity prices, but still keep them below the actual cost of generation."

Concerned that subsidy cuts will prompt anger among a public already dealing with huge economic pressures, the  government has delayed plans to cut fuel and electricity subsidies entirely on multiple occasions.

Beyond electricity and fuel subsidies, total allocations for subsidies, grants and social benefits in the new budget amount to LE732.6 billion, reflecting a 15.2 percent increase from the current fiscal year, according to the Cabinet statement.

The government attributed this rise to efforts aimed at "easing financial burdens on citizens and directing support toward the most vulnerable groups."

However, the growth rate of subsidy allocations in the new budget drops from 18.93 percent in FY 2024/5 to 7.61 percent in FY2025/6 when the significant portion of social support allocated to cover the government’s debts to the pensions authority is excluded. The spending bracket earmarked for treasury contributions to pension funds is worth LE227.1 billion, or over 30 percent of the total spending on social support.

Salma Hussein, Friedrich Ebert’s research manager, explains that these allocations essentially function as debt repayments and should therefore be categorized under debt servicing in the general budget, as they are paid out under a 2024 law aimed at rectifying the impact of a 2005 decision to merge social insurance funds into the state budget.