IMF calls Egypt to subsidy reform from Iran

Iran ventured where few of its regional rivals dared in 2010 when it raised fuel prices. Iran and Egypt share a common need to reform. An overhaul of subsidies had been debated in Iran for years before Tehran took action to address its $60 billion bill. Egypt, similarly, has long considered trimming energy subsidies, which now gobble up 20 percent of the budget. The matter is becoming more urgent after the revolution left the country with a double-digit fiscal deficit, increasing debt and shrinking foreign reserves. Egypt may learn a thing or two from Iran's extensive public relations campaign prior to the raising of prices. Iranian media went to great lengths to emphasize the social inequity of subsidies. To minimize social unrest, Cairo must ensure the country's poor understand that they are not the main beneficiaries of the current, absurd system - if only because they live without air conditioning and drive old cars, if any. Egypt's model of subsidy reform will be a pick n' mix of swapping expensive fuel oil for gas, raising the price of the most expensive diesel, and establishing a system that weans industry off cheap fuel. Chief of the International Monetary Fund (IMF) Christine Lagarde praised Iranian President Mahmoud Ahmadinejad's subsidy-cuts plan, and described it as a brave move which should be followed by other countries. Lagarde made the remarks, addressing a joint meeting of the World Bank and the IMF earlier this month. She referred to Iran's measures in reforming its subsidiary system in the past two years as exceptional, and called on other world countries to follow the role model of Iran in carrying out reforms. Referring to the economic crisis now engulfing the world, the IMF chief believed carrying out reforms in the existing economic structures is a solution to the problem. Paying targeted subsides is one of the most important ways to that end, Lagarde said. On December 19, 2011, Iran began a long-awaited subsidy reforms plan after months of speculation regarding the timing or degree of the subsidy cuts. The plan included subsidy cuts on energy prices, including the heavily subsidized gasoline prices. The price of heavily subsidized gasoline (for the first 60 liters purchased by each motorist per month) was increased to 4,000 rials ($0.40) per liter, from 1,000 rials ($0.10) per liter, and all gasoline purchased above the monthly quota was priced at 7,000 rials ($0.70) per liter going forward. Ahmadinejad announced at the time that the launch of his economic reform plan is aimed at overhauling the country's economy by phasing out energy and food subsidies. Under the plan all subsidies are to be gradually removed during a five-year period. The subsidy cuts (also known as targeted subsidies) plan - encompassing key consumer goods such as gasoline, natural gas, and food - is said to be one of the most important undertakings in Iran's recent economic history. Ahmadinejad has also vowed that the Iranian government would tackle economic problems such as housing, unemployment and improve the banking system through his economic reforms plan. According to the president, the initiative would lead to a better distribution of wealth among the public. Officials say energy subsidies have cost the Iranian government around 100 billion dollars. Analysts say that the plan is in line with recommendations from global financial organizations which advised Iran to get rid of a heavily subsidized economy if it wanted to boost its economic power.