Egypt's Further Economic Good Sense - Cutting Fuel Subsidies As Well As Floating The Pound

mentioned a couple of days ago that Egypt was enacting a very sensible economic policy in floating the Egyptian pound. Yes, it’s true, this will lead to a bolus of inflation in the economy–there’s a huge reliance upon imports in the country. But then devaluing the currency is rather the cure for that problem anyway. It’s also true that the Egyptian government has enacted another sensible policy, cutting the subsidies to fossil fuels. This has been such a weight upon the economy as a whole that getting rid entirely of such subsidies can only be a good idea. This also accords with the most basic economic insight about subsidies in the first place. Subsidise people, not products.

That floating the pound was a good idea I mentioned already:

One of the great lessons of economics is that things are simply worth what they are worth. Nothing is worth more than somebody is willing to give for it. Thus, if the black market (for which read free market) value of the Egyptian pound was £18 to the dollar then that’s just what an Egyptian pound was worth. The government promising to buy and sell them for 8.88 just wasn’t going to work. Sure, it could be done for some time but the longer it went on the more the Egyptian government was going to lose and the poorer the Egyptian people were going to be. This is always true of price fixing, it makes people poorer.

Getting rid of the price fixing and moving to the market rate will increase economic efficiency. Increased economic efficiency makes people richer.

Egyptian stocks rallied a seventh day on bets an unprecedented decision to float its currency will help cement a $12 billion loan from the International Monetary Fund.
The EGX 30 Index climbed 2.8 percent at 10:22 a.m. in Cairo, poised for the longest winning streak since March. Members of the benchmark gauge traded at the most expensive in 17 months based on future earnings, as the measure’s 14-day relative index rose further into overbought territory. Shares in Dubai fell 0.6 percent, while those in Saudi Arabia added 0.4 percent.