Egypt Increases Fuel Prices Following Depreciation of Local Currency

The Egyptian government raised fuel prices on Friday in a move that is bound to exacerbate inflationary pressures on an already struggling population.
The new prices were announced and came into effect Friday morning. The price of diesel, the main fuel for the transport of people and goods, rose from 8.5 Egyptian pounds ($0.18) to 10 pounds ($0.21) per litre.
On March 6, Egypt’s central bank announced the adoption of a market-based exchange rate after nearly a year of defending an over-valued local currency, which inadvertently invigorated a parallel market. The pound’s official rate fell from nearly 31 to 51 per U.S. dollar before appreciating by nearly 10% in recent weeks as the banking sector began receiving large inflows of foreign currency.
The government also increased the cost of widely used butane gas cylinders from 75 Egyptian pounds ($1.61) to 100 pounds ($2.14).
The fuel price hikes are expected to further affect consumer purchasing power and inflation rates. Last month, the annual urban inflation rate jumped to 35.7% from 29.8% in January. The cost of food alone increased nearly 51% in February from a year earlier.
Egypt reached a deal with the IMF earlier this month to increase a bailout to $8 billion from $3 billion after marathon negotiations.
The lending institution has constantly urged the government to depreciate the currency and embark on monetary and fiscal tightening policies, including a cutback in government subsidies.
Houthi attacks on shipping routes in the Red Sea have slashed Suez Canal revenues, which are a major source of foreign currency for Egypt. The attacks forced traffic away from the canal and around the tip of Africa.
Last month, the UAE threw a lifeline to Egypt by announcing a $35 billion investment project along its Mediterranean coast.