Breakfast Wrap: Iran May Halt Subsidy Reform, Egypt Delays On Subsidy Reform

Iran’s economic pain caused by the plunge of the rial currency may halt subsidy reform.  The Iranian parliament voted on Sunday to consider suspending plans for further reform of the country’s food and fuel subsidies.

Iran’s gradual removal of subsidies is regularly cited as a model for other countries in the region.   Reforms aimed at easing pressure on state finances by cutting tens of billions of dollars from the amount which the government pays to subsidise low consumer prices for food and fuel.  It offset the impact on the poorest by giving them monthly cash payments.

The first stage of reform was introduced in 2010, but now the second phase looks like it will be stopped.

It is a political blow to Iran’s president Mahmoud Ahmedinejad who has taken subsidy reform as a centrepiece of his policy making, but critics say the reforms actually contributed to soaring inflation.

Energy subsidy reform is among the major problems the region is having to face post-revolution and with methods changing from country to country it is hard to compare.  What is clear is that the economic strain from war, uprising, sanctions and general political instability means it is game over for countries that cannot afford these reforms any longer.

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Meanwhile in Egypt, sources at Petroleum Ministry expect President Mohamed Morsi to lift subsidies on 95 octane fuel within days.

This is the fuel commonly used for more expensive cars.

While it is a welcome move, the sources summed up the significance of the decision (if it actually happens):

The sources [said this] would not save much from the subsidy budget… It was a symbolic step towards the plan to ration subsidies beginning after the next parliamentary elections, and a gauge of the reaction to higher prices for vital goods.

Basically, this is just a test run and doesn’t really make a difference aside from monitoring public reaction.

Egypt may be witnessing what Iran is going through and more hesitant than ever to make changes.  But the two countries are very different and the economic strain in Egypt predominantly comes from energy subsidies, as Rebel Economy has argued repeatedly.

It’s time to bite the bullet and implement widespread changes. 

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Qatar National Bank (QNB), the Gulf lender in talks to buy Societe Generale’s Egyptian arm, posted a 10.5% increase in third-quarter net profit, driven by increased interest income and a drop in loan impairments.

The acquisitive bank, which has been snapping up stakes in small regional lenders, reported a net profit of 2.1 billion riyals ($577 million) for the third quarter, compared with 1.9 billion riyals a year ago.

Banks in Qatar are expected to benefit as the country is one of the world’s fastest-growing economies and set to spend more on infrastructure as it prepares to host the 2022 World Cup soccer tournament.

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Scoop from the business section at The National: Etihad Airways and Air France-KLM are expected to announce a “game-changing” alliance today, writes David Black, a business reporter, citing an industry source.

“This will be one of the biggest deals the European airline industry has seen. It is a major, multi-faceted commercial partnership that goes way beyond simple code-sharing,” the source said. 

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The Financial Times delves in the contradictions of the Islamic banking sector following HSBC’s decision last week to close down its Islamic retail banking operations in six markets – leaving it with a presence only in Malaysia, Saudi Arabia and, in shrunken form, Indonesia.

The story looks at how the Islamic banking sector, particularly in retail banking, is fundamentally flawed pointing to asset growth as one thing, but revenues and profits another.




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