CAIRO: The political unrest that rocked Egypt over the last month will cut tax revenue and has prompted the government to raise the 2010/11 budget deficit forecast by as much as half a percentage point of gross domestic product, its finance minister said on Tuesday.
The impact could be greater in the next fiscal year if the political and economic uncertainty continues, Egypt’s new Finance Minister Samir Radwan told Reuters in a telephone interview.
Total government spending in the current year ending in June, however, will be unchanged from the original target as a series of promised increases in spending will be balanced by taking funds from other parts of the budget, he said.
Egypt had predicted a deficit of 7.9 percent of GDP for fiscal 2010/11 before the unrest that ousted President Hosni Mubarak last week, but has now revised that up to 8.2 to 8.4 percent of GDP, Radwan said.
"This is mainly because of a slowdown in economic activity," he said, adding that the figures were preliminary.
Egypt posted a deficit of 8.3 percent of GDP in 2009/10.
The unrest will slow tax revenue growth this year, but the main hit will come in the 2011/12 fiscal year if political and economic conditions remain uncertain, Radwan said.
"It is next fiscal year. That is when we expect a decline in tax revenue if the situation continues," Radwan said.
Two of the Egyptian government’s other main sources of revenue, tolls from the Suez Canal and energy sales, have continued to hold up well, he said.
He said rather than demand a lump sum from companies on April 1 as normal, the government will now allow companies to pay income tax in three installments by the end of June.
Economists say a decline in tourism, consumption and business activity since the unrest broke out has harmed taxes, which make up about 60 percent of total government revenue. They estimate that revenue from corporate income tax may actually fall this year.
Mohamed Rahmy, an economist with Beltone Financial, said he expected that revenue growth in 2010/11 could slow to 5 percent from a previous forecast of 15 percent.
"Once things stabilise — and there have been promising signs — you won’t have such a steep slowdown," Rahmy said.
Radwan said the government would pay for additional spending it has announced since the unrest broke out by taking funds from other parts of the budget.
"It will be rearranging lines, juggling lines, etc.," Radwan said. "Nothing we have decided has affected the budget deficit."
The government has brought forward by three months a bonus it gives each year to civil servants, equal this year to 15 percent of their salaries, Radwan said.
There will be no increase in civil servants’ salaries apart from the annual increases announced every year in the new budget that takes effect on July 1, he said.
Radwan said a LE 5 billion fund announced last week to compensate people who suffered losses during the unrest was counterbalanced by decreased interest payments on loans that the government had budgeted for when it drew up its budget last year.
Only about LE 1.5 billion of a LE 2.8 billion fund to ensure food imports represented additional funding, with the rest having been already allocated for previously, he said.
