General picture of the Egyptian economy mixed during IMF visit

By Ahmed Farhat

The total deficit, according to final indicators for the public budget, reached EGP 255.4bn in fiscal year (FY) 2013/14, equivalent to 12.8% of GDP, compared to EGP 239.7bn, or 13.7% of GDP, in FY 2012/13 according to government figures.

The government attributed the budget deficit decrease to strong Gulf support in the wake of the military’s ousting of former president Mohamed Morsi in the form of petrol and oil aid worth $12bn, which increased budget grants to EGP 100bn.

The government also reduced petroleum product subsidies from EGP 144bn to EGP 100bn, thereby raising fuel prices, and also imposed taxes on profits and dividends on the financial securities market. These reforms contributed to financial savings estimated to be approximately EGP 51bn according to statements made by Minister of Finance minister Hany Kadry Dimian.

According to Christine Lagarde, Managing Director of the IMF, recent steps taken by the government toward economic reform form a good start for restoring public finances. However, she did point to a need for a plan to protect the poor in light of subsidy reform through policies aimed at accelerating growth and creating jobs.

She added that subsidies were reduced for many important reasons, including freeing public resources for investment in priority sectors like infrastructure, education, and health. These sectors support growth and create jobs, and investment will help reduce the deficit, further freeing resources for private sector investment. This is an important factor in achieving growth, and by the same token, raising energy prices will help encourage energy conservation, which will eventually reduce power outages and shortages.

She warned of the impact fragile global economic recovery, the effects of unrest across the Middle East, and the war against ISIS in Syria and Iraq on oil prices and declining investor confidence.

Lagarde also added that the conflicts in the Middle East and North Africa will have serious economic implications not just for the region, but the entire world.

Despite the IMF’s optimism toward Egypt, the country faces several important issues that should be reviewed by the government in the near future. This includes the increase of domestic and foreign debt to EGP 1.9tn in June 2014, compared to EGP 1.6tr at the end of June 2013.

Wages increased for FY 2014/15 to EGP 206bn from EGP 178.7bn in the previous year, which represents 25% of total public expenditures last year. Debt servicing rates also increased to EGP 173.2bn compared to EGP 147bn for FY 2012/13.

At the same time, tax revenues rose slightly during FY 2013/14 to EGP 260bn from EGP 251bn in the previous year. Taxes brought in EGP 120bn in revenue while total proceeds from goods and services amounted to EGP 92bn. Foreign trade brought in EGP 17bn in taxes as well.

Public revenues amounted to approximately EGP 456.8 bn.

Important indicators for the final accounts of the public budget for FY 2013/14: