Government eyes 9.5% budget deficit, 5.5% economic growth

Sara Aggour
3 Min Read
Minister of Finance Hany Khadry Dimian announces that Egypt will participate in the G20 summit for the first time

The Egyptian government has set its economic targets for fiscal year (FY) 2016/2017m, setting the budget deficit target at 9.5% of the gross domestic product (GDP), with expected economic growth of 5%-5.5%.

The government’s new targets were announced in an official statement issued by the Ministry of Finance on Monday.

Finance Minister Hany Kadry Dimian said the draft budget will be the first to be reviewed by parliament in five years.

Alia El-Mahdy, professor of economics at Cairo University, said the key to achieving the government targets is managing the reduction in subsidies.

“The government cannot lower wages or the interest on loans, so it can only decrease government investments and cut subsidies further,” she said.

She said that the EGP 70bn the government spends on investments is so small that cutting it would have little effect. In which case, subsidy cuts are the only course of action likely to have the desired effect.

In June, the World Bank issued a report in which it predicted that a 10% budget deficit could be expected by FY 2016/2017.

One of the main pillars of the FY 2016/2017 budget is to increase foreign-currency income through clear economic policies in order to “protect the Egyptian economy”, according to the finance ministry statement.

The draft budget predicts that unemployment will decrease to 10%, in comparison to the 12.7% recorded at the end of FY 2014/2015.

Public debt is expected to range between 88% and 90% of GDP.

Dimian pointed out that the budget aims to increase state revenues from both taxation and other sources, adding that eight steps will be applied, including the implementation of value-added tax (VAT).

The minister previously announced that full details on VAT would be announced before the end of 2015, after the completion of the dialogue with civil society organisations. No details have been announced yet.

The government announced that the budget deficit for last FY 2014/2015 amounted to approximately 11.5%, failing to meet the previously set goal of 10%-10.5%. The budget deficit for FY 2013/2014 was 12.2%, while that of FY 2012/2013 stood at 13.7%.

“The final account [of the FY 2014/2015 budget] showed an overall revenue of EGP 465.2bn, with an increase of about EGP 8.4bn, compared to last FY, while expenses reached about EGP 733.4bn, with an increase of about EGP 31.9bn, compared to last FY,” Dimian said earlier this month.

For the current FY 2015/2016, the government set the target for the deficit at 9.9%, approximately EGP 281bn.

Prior to his election, President Abdel Fattah Al-Sisi set the goal of reducing public debt to 74.5% of GDP. In the budget draft for FY 2015/2016, the government stated, however, that the new goal for public debt reduction in FY 2018/2019 is 85%.

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