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Egypt raises fuel prices to slash subsidies

President Abdel Fattah al-Sisi may face his first challenge as Egyptians are forced to pay more for fuel as they head to the pumps on Saturday
Egyptian motorists line up to buy fuel at a gas station in Cairo last year (AFP)

Egypt's government drastically raised fuel prices late Friday to tackle a bloated subsidy system, in a potentially unpopular move that could present newly elected President Abdel Fattah al-Sisi with his first serious challenge.

The price increase follows Thursday's one-year anniversary of the military coup which saw President Mohamed Morsi's ouster. The anniversary saw protests across the capital and several other areas in the country, with three protesters at gatherings organised by Morsi supporters reportedly killed. Their funerals were expected Saturday.

With an economy battered by three years of unrest, successive governments had said that the subsidies which allow Egyptians to buy gasoline at some of the world's cheapest prices must be lifted.

But the authorities had shied away from implementing the cuts fearing a public backlash, something that Sisi, elected in May, has said would not prevent him from slashing state spending.

The government decree raised the price of 92 octane gasoline, which sold at 1.85 pounds ($0.36) a litre, to 2.6 pounds, and 80 octane gas from 0.9 pounds to 1.6 pounds a litre, the official MENA news agency reported.

The price of diesel was raised from 1.1 pounds to 1.8 per litre, the agency reported.

The price increase will take effect at midnight Friday, the state-owned Al-Ahram newspaper reported on its website.

Despite the increase, some noted that Egyptians will still pay a minimal price for fuel relative to international standards:

The state spends more than 30 percent of its budget on fuel and food subsidies, in a country were nearly 40 percent of the population - some 34 million people - hover around the poverty line.

Interim premier Ibrahim Mahlab has said that subsidies on oil cost the exchequer $22 billion, against an annual education and health budget of $9.8 billion.

Sisi, a former army chief who came to power in elections after overthrowing Islamist president Mohamed Morsi a year ago, preaches a message of austerity and self sacrifice to restore the economy.

The economy has been propped up by billions in Gulf Arab state aid after the overthrow of the Islamist Morsi, whom regional powerhouses such as Saudi Arabia and the United Arab Emirates viewed with suspicion.

The government has also signed off on a capital gains tax and said it would gradually raise electricity prices over the next five years.

Sisi won the May election by about 97 percent of the vote against a weak leftist candidate, and many view him as a strong leader who can kickstart a recovery.

But Morsi's Muslim Brotherhood movement, decimated in a brutal crackdown after his overthrow, still holds near daily protests it hopes will grow with increasing economic discontent.

An early 2011 uprising that ousted veteran dictator Hosni Mubarak sent the economy into a downward spiral.

The country has just began to recover when the military, prompted by huge protests, overthrew Morsi in July last year.

Since then Egypt has been rocked by bloody street clashes and militant attacks in which almost 2,000 people have been killed.