Egypt to start fuel cuts in 2014

No previous Egyptian government has tackled the country’s fuel subsidy program

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Egypt’s government will start cutting fuel subsidies before it leaves office next year, Prime Minister Hazem al-Beblawi said Sunday, but the ambitious reform hinges on an end to the country's turmoil.

Beblawi’s government, installed by the military after it overthrew president Mohammad Mursi in July, contends with a determined Islamist protest movement that the prime minister accused of trying to create a “crisis” in the country, in an interview with AFP.

According to a timetable, a referendum to vote on a new constitution within the next two months will be followed by parliamentary elections and presidential polls by the end of the summer.

Although long a demand of international lenders, no Egyptian government has sought to aggressively tackle the bloated fuel subsidy programme for fear of igniting unrest.

“It is unsustainable, the kind of subsidies we are incurring,” said Beblawi of the program that eats up a fifth of the budget just on energy support.

“It is not only high but it is increasing. We have to face it squarely and make drastic decisions,” he said in the interview.

“I would imagine that this government before its mandate in the last two months should arrive to a programme for the coming five or seven years and try to implement the first phase,” he said.

“But this phase should be reasonably moderate, acceptable.”

Further turmoil

In a country with an unemployment rate of 13 percent, mostly men aged between 15 and 29 years, reducing government support for basic goods could lead to further turmoil.

“You need to go very carefully, because the success of such a programme will depend to a great extent on the implementation of the first phase,” said Beblawi.

“So the first phase must be real, but also acceptable. Because if it fails, no one will dare to do it again,” he added.

Beblawi’s government is scheduled to leave office after a new president is elected, with polls to take place sometime around June.

The first phase of subsidy reforms “depends also on the smooth passage of the roadmap,” Beblawi said, referring to the timetable for elections.

“If we have a very smooth referendum, a successful one, and then parliamentary (elections), it will encourage the government to be bold enough.”

Wracked by often violent protests and escalating militant attacks since Mursi’s overthrow, Egypt lost a significant chunk of its tourism and investment revenues, and is now propped up mainly by aid from Gulf countries.

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