In Egypt, rolling power outages in 2013 played a significant role in undermining support for then-President Mohammed Morsi, leading up to the coup that put Abd al-Fattah al-Sisi in power. The transformation of Egypt’s power sector since then has been a signal achievement of his government.
Yet, shortfalls in gas flows have not only undermined export revenues — they have now led to further power outages that government officials say may run through to mid-September.
Egypt’s next presidential election is due in early 2024. However undemocratic the vote may be, Sisi and his military allies will be keen to be able to claim that his administration has been able to deal with the numerous external shocks that the Egyptian economy has experienced in recent years.
Fuel, Dollars Drying Up
As in 2013, the reliable availability of power is an important factor.
Political dissent remains rare in Egypt, largely due to the threat of how draconian security forces will respond to public protests. Even so, the political environment remains extremely delicate — prolonged power outages over the coming weeks will only worsen a situation that has already been rendered extremely difficult for the government by its inability to control consumer price inflation.
In addition to the political sensitivity of the power issue, the need to import more fuel oil is another unexpected drain on the government’s dollar liquidity position. Actuals data (recorded revenues and expenditures at a given point in time, as opposed to a budget) for the last quarter of fiscal 2022/23 show gas output falling again to an average of 5.9bn cu ft/d, its lowest level since 2020. Output from the Mediterranean region continues to decline, driving the overall fall in output.
The upshot: Egypt is close to reaching a situation where it will require net imports to meet domestic gas demand through much of the year.
Meanwhile, Egyptian officials suggest that the IMF review of the government’s performance under the latest loan deal could happen in September, months after it was due. The government can legitimately claim to have taken some of the steps required by the Fund.
But subsidies remain an essential part of the government’s toolkit and officials insist that another devaluation of the pound is unlikely. Policing its conditionality is challenging for the IMF in Egypt, a country the Fund has lent over $20bn to since 2016.
For its part, ratings agency Moody’s is highlighting that revenues generated by the divestment of state assets do not provide an immediate solution to Egypt’s fiscal shortfall. Across the sector, IOCs are seeing increases both in total receivables owed and the portion that is overdue.
Another raft of divestments of state assets could generate further inflows, but the potential devaluation of the Egyptian pound is scaring away potential investors.
Overall, it is very unlikely that the total amount of receivables arrears due to IOCs will be reduced before the end of this year. The near-term outlook for payments risks remains negative, with the state companies still seeking to pressure IOC partners to get paid in pounds.
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