A value-added tax introduced in 2016 and new sin taxes have pushed prices up by around 20%, but few smokers have kicked the habit. Eastern Company, a state-run tobacco firm, posted a 4.2bn Egyptian pound ($239m) profit in its most recent fiscal year, up 43% from the previous one.
So when the government announced plans to flog off 4.5% of Eastern, it should have been an easy sell. The firm was to be the first of five put up for sale this year as part of a push to offload bits of the bloated public sector. But with investors nervous about putting money into emerging markets generally—the MSCI emerging-markets stock index has slumped by 25% from its recent peak in January—the government put those privatisations on hold. Even private firms are reluctant to go public. Sarwa Capital, a leasing firm that listed its shares on October 15th, watched them promptly fall by 15%. No one knows when the state will resume public offerings. Though business is good, shares in Eastern are down by 16% over the past month.
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Egypt’s government is trying to reverse decades of bad economic policy by cutting subsidies and hawking off state-run firms to close a whopping fiscal deficit of 9.7% of GDP. But it is running out of luck. The finance ministry had hoped to raise 10bn Egyptian pounds through this year’s public offerings to reduce the deficit to 8.4% of GDP in the fiscal year to June. That goal now seems out of reach.
Adding to the fiscal pressure is a higher oil price, since the government subsidises petrol and cooking gas. It has raised fuel prices three times in two years, most recently in June, when some grades of petrol jumped by 50%. Cooking-gas prices rose even faster. The most recent increase was meant to shave 50bn Egyptian pounds off the annual subsidy bill.
But the budget for the current fiscal year is based on an oil price of $67 a barrel, and it has not touched that floor since April. As The africanews went to press, a barrel of crude fetched about $76. Each dollar above the baseline adds 4bn pounds in subsidy costs, meaning higher oil prices have almost wiped out the savings from raising fuel prices. With America set to re-impose sanctions on Iran’s energy sector in November, analysts expect oil to be even dearer next year.
Egypt’s import bill is also rising, despite slivers of good news. In September Egypt accepted its last shipment of imported natural gas. Energy firms have discovered vast deposits of gas in its waters. These are enough to make the country self-sufficient—saving it $2bn a year in gas imports. In the future it may be an exporter.
Egypt is running deficits on its current account of $6bn a year (or about 2.4% of GDP) that it covers by borrowing abroad. It owes foreigners $93bn, equivalent to 37% of GDP, up from 16% of GDP two years ago. About a quarter of that is due in the next two years. With emerging markets in turmoil, the finance ministry is struggling to raise more money. It cancelled four consecutive bond auctions in September after prospective buyers demanded high yields. Foreign holdings of Egyptian treasuries fell by 39% in the six months to September. Stressed bureaucrats may need a smoke.