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Working Paper

Egypt : Guiding Reform of Energy Subsidies Long-Term

SANITATION EMPLOYMENT NATURAL GAS OUTPUT FUEL SUBSIDIES GOVERNMENT EXPENDITURES POWER PLANTS OIL PRICE ADVERSE IMPACTS INCOME ACTIVITIES GENERATION REAL GDP BALANCE OF PAYMENTS EXPORTS ELASTICITY GAS PRICES DOMESTIC NATURAL GAS GASOLINE ENERGY PRODUCTS ECONOMIC IMPLICATIONS INCENTIVES EQUILIBRIUM GAS SUBSIDY PRICE TAX INPUTS OIL PRODUCTION PAYMENTS DISTRIBUTION OF ENERGY TRADE BALANCE LNG OIL PRICES PETROLEUM TOTAL FACTOR PRODUCTIVITY NATURAL GAS PRICES COSTS OIL POWER GENERATION ELECTRIC POWER PLANTS HIGHER ENERGY PRICES TRANSPORT POWER SECTOR REFINED PETROLEUM PRODUCTS MOBILITY BASE YEAR CRUDE OIL PRODUCTION OIL PRODUCTS WATER HIGH ENERGY BUDGET DEFICITS TOTAL COSTS STATIC ANALYSIS PRICE SUBSIDIES SUBSIDIES TAXES PRODUCTIVITY GROWTH CONSUMPTION VALUE ADDED TRANSPORTATION ECONOMIC PERFORMANCE CAPITAL WAGES INTERNATIONAL TRADE ELECTRIC POWER BALANCE PRICE ELASTICITIES OIL PRODUCER ELECTRIC POWER GENERATION UTILITIES VALUE WAGE RATES POWER ELECTRICITY CEMENT ELASTICITIES MACROECONOMICS TRADE DEFICIT ECONOMIC SECTORS DRY NATURAL GAS GAS PRODUCER ELECTRICITY GENERATION PRICE CHANGES ENERGY EXTRACTION AGRICULTURE CONSUMERS ECONOMIC EFFICIENCY OIL PRODUCERS COST OF ENERGY MEASUREMENT GAS OUTPUT ENERGY USE DYNAMIC ANALYSIS BENCHMARK ENERGY PRICES FIXED PRICES TAX REVENUE ELECTRICITY PRICES CAPITAL USE TRADE NATURAL GAS GDP GOODS GOVERNMENT SUBSIDIES GROWTH RATE OIL EXPORTERS INVESTMENT TOTAL FACTOR PRODUCTIVITY GROWTH CONTROLLED PRICES DOMESTIC ENERGY ADVERSE IMPACT COAL DIESEL FUEL CRUDE OIL FUEL FUEL OIL INVESTMENTS PETROLEUM PRODUCTS TRANSPORT COSTS FULL EMPLOYMENT DIESEL MACROECONOMIC PERFORMANCE ENERGY COSTS PRICES APPROACH PRODUCTION COSTS ENERGY DEVELOPMENT POLICY INCOME GROUPS NATURAL GAS PRICING
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World Bank, Washington, DC
Middle East and North Africa | Egypt, Arab Republic of
2016-03-09T16:35:27Z | 2016-03-09T16:35:27Z | 2016-02

This paper examines the short- and long-run economic impact of Egypt's energy subsidy reform in July 2014 (without and without compensating transfers for the bottom 40 percent of the income distribution) and the decline in global energy prices, as well as the long-run impact of phasing out the energy subsidies over a 5 year period. The analysis uses a Computable General Equilibrium model with 56 productive sectors, including 11 energy subsectors. The short-run analysis employs a two-stage factor market adjustment, with wages first fixed and then flexible. The long-run analysis is run in a recursive dynamic mode, capturing the impact of improved productivity and increased investment resulting from more efficient allocation of resources and reduction in government deficits. In the short run, the 2014 reforms lead to slightly lower consumption while investment increases strongly and production shifts from highly subsidized energy-intensive sectors such as energy, water and sanitation, and transport to other sectors (notably construction). The impact on overall consumer prices is limited. In the longer run, real GDP growth increases by about one percentage point relative to the baseline before the 2014 reform.

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