News Analysis: Lower oil prices likely cast positive shadow over Egypt’s economy

The global oil price crash will likely go for the benefit of Egypt despite negatively impacting oil-exporting Gulf allies which provided the most populous Arab country with billions of dollars in aid, experts said.

“Falling oil prices will reduce Egypt’s budget deficit based on expected decline of energy subsidy,” said Ihab al-Desouky, head of Cairo-based Center for Economic Studies at Sadat Academy.

He noted it will be one of the biggest positive impacts on Egypt’s weak economy. “Egypt is an energy importer, what concerns us is the process of imports,” he said.

With oil prices sliding, Egypt is expected to save more than four billion U.S. dollars, Petroleum Minister Sherif Ismael said on Tuesday, as the country relies on imported petroleum products.

Egypt’s budget for 2014-2015 fiscal year allocated 100 billion Egyptian pounds (nearly 14 billion dollars) for oil products subsidies.

If prices continue to decline, Egypt would save around 30 billion pounds (4.2 billion dollars) out of the total amount, according to a statement published on the Petroleum Ministry website.

Egypt’s fiscal year runs from the beginning of July till the end of June.

Oil prices have dropped dramatically over the past six months, with Brent crude trading at 60.87 dollars a barrel on Tuesday, down 47 percent from this year’s peak just over 115 dollars in June.

Egypt struggles to revive its economy which has been battered since the country hit by the three-year turmoil which ousted two presidents.

The Gulf states, Saudi Arabia and the United Arab Emirates in particular, had thrown their weight behind Egypt, after the ouster of the Islamist President Mohamed Morsi last year, in its war against “terror of Islamists.”

Egypt was given free oil shipments from the Gulf States in support for the current military-backed government, and has received cash and oil products worth 10.6 billion dollars from the Gulf during 2013-2014.

But what is really important for Egypt is “not the Gulf aids but their investments” that Egypt will seek in the coming economic forum in 2015, Desouky said, adding that “the Gulf allies have special funds with huge amount of money designated for overseas investments that would never be affected by other factors like declining oil prices.”

Meanwhile, according to Tariq Ibrahim, economic professor at Cairo University, “lowering oil prices is a double-edged weapon.”

The plummeting oil prices will directly lead to lower allocations of energy subsidies, which was the biggest challenge that post-revolution regimes face since the Jan. 25 uprising in 2011.

However, the professor argued if the oil prices remain low, the Gulf states supporting Egypt will be forced to reduce some of its aids.

The current situation for oil prices is negatively affecting the Gulf investments in Egypt, he said, noting that the potential impact will affect projects that the Gulf governments intend to put forward at the coming economic forum.

In addition, Atef Latif, tourism expert and member of Sinai Investors Association, said the price crash will reduce the foreign currency generated by tourism.

Tourism industry, which brought the country over 13 billion dollars in 2010 alone, has witnessed a sharp decline due to the country’s political turmoil.

He gave example of the Russian tourists, which occupy the biggest share of tourism influx in Egypt, are reluctant to visit Egypt in recent days, due to the weakness of the Russian currency Ruble over its oil crisis.

With less purchasing power of their money, some Russian tourists have to tighten their belts and stay at home to spend their Christmas and New Year holidays.

 

Source:shanghaidaily