A drop in oil prices to US$20 per barrel could decrease financial and in-kind aid Egypt receives from Gulf countries, encouraging it to also slash energy subsidies.
According to the Egyptian Center for Economic Studies, if petroleum prices fall to as low as US$20 per barrel, Egypt will enjoy a boom in investment flows and expatriate remittances. Energy subsidies, encouraged by such a decline, would also be cut to save the budget LE34 billion that could be directed to the health and education sectors.
Consequent savings could also “lower government arrears” and reduce the price for petroleum imports, thereby “improving the trade balance”, according to the center.
If the price remains at US$45 per barrel, Gulf aid will continue and energy subsidies will remain high, raising the cost of production and widening budget and trade gaps.
“A stronger dollar may exert downward pressure on the value of the Egyptian pound,” the center said.