The revised budget has set fundamental goals for the budget deficit, gross domestic product (GDP) growth, unemployment, foreign reserves, public spending and public debt, Finance Minister Hany Kadry Dimian announced Saturday.
Increasing the international foreign reserves to cover 3.5 months of imports, and lowering unemployment by 1% to range between 11.5% and 12%, is among the government’s goals, Dimian added.
On 1 July, the Ministry of Finance announced that the cabinet approved a set of revisions to the budget, including an 8.9% budget deficit target, or approximately EGP 251bn. The targeted revenues were altered to EGP 622.2bn, a 27.7% increase, with the revised public expenditures set at EGP 864.4bn, a surge of 17.4%.
The government is hoping to decrease the deficit to 8% – 8.5% of GDP by FY 2018/2019. GDP growth is predicted to reach 7% by FY 2018/2019, whilst unemployment is expected to decrease to 10%.
According to the World Bank, the budget deficit will reach 10% of GDP, while the GDP growth will inch up to 5% in FY 2016/2017.
The goal for public debt is to push it down to between 85%-91% of GDP within the coming two fiscal years. The public debt increased in 12 months from EGP 1.8tn, 90.4% of GDP, in March 2014, to EGP 2.1tn, or 93.8% of GDP.
The inflation will decrease by 1% during FY 2015/2016 to reach 11%, Dimian said, adding that the medium-term goal is to lower it to 7% – 8%. The World Bank predicts that inflation will remain at around 10% through FY 2016/2017.
The Ministry of Finance pointed out that it will reprioritise its spending towards the improvement of general services. Approximately 50% of government spending will be allocated to support programmes that seek “direct social protection”. Volumes of money allocated to cash subsidies, healthcare and pensions have all increased, the ministry clarified.
The cabinet released the budget draft over 10 days ago. The unrevised draft set the target for budget deficit at 9.9% of GDP, around EGP 281bn, the FY 2014/2015 figures having stood at 10.8%. The GDP growth was expected to reach 5% during the new fiscal year, compared to 4.25% during the current fiscal year. Public revenues and public spending were expected to witness a surge, rising by 23% and 18.5% to reach EGP 599bn and EGP 872.6, respectively.
The Ministry of Finance, in coordination with the Central Bank of Egypt (CBE), said in late June that it intended to borrow EGP 262bn to fund the budget deficit in the first quarter (Q1) of the new fiscal year (FY) 2015/2016.
The ministry’s plan outlined that the government is looking to issue treasury bills worth EGP 189.5bn, and treasury bonds worth EGP 72.5bn in the period between July and September 2015.
International rating agency Moody’s criticised the budget deficit goals, saying: “This percentage represents a slower fiscal reform than projected by the government’s Medium-Term Macroeconomic Policy Framework and the government’s pre-budget statement for 2016.”
The Moody’s report further detailed that Egypt is facing declining budgetary donations, which will decline to EGP 2.2bn in FY 2015/2016 compared to EGP 25.7bn in FY 2014/2015 and EGP 95.9bn in FY 2013/2014, according to the draft budget.