CAIRO: Egypt saw a rise in both state revenue and expenditures in the first eight months of the fiscal year, up 33.2 percent and 29 percent, respectively, over the same period last year.
Revenue reached LE 161.5 billion and totaled 15.5 percent of GDP so far for the 2008/2009 fiscal year, which began in July.
Hand-in-hand with the rise in revenue, government expenditures rose to LE 205.2 billion.
This increase in expenditures came as the government spent 11.5 percent more on subsidies and 21 percent more on wages than it did over the same period a year earlier.
Al-Alam Al-Youm reported that the budget deficit for the eight months was 4.3 percent of GDP.
Some experts expect deficit spending will become a more significant portion of GDP as the year progresses.
“We expect fiscal deficit/GDP to increase reaching 8.2 percent in fiscal year 2008/09, said Alia Mamdouh of CI Capital in a statement.
The revenue figures were buoyed by across the board gains. Al-Alam Al-Youm reported that tax revenues rose by 16.7 percent to LE 90 billion. Non-tax related revenues were up 62 percent to LE 71.6 billion.
One of the main contributors to the increase in expenditures was the LE 15 billion stimulus package that the government announced in November of last year to deal with the global economic crisis. It was a measure similar to many that have been enacted by governments around the world. It is likely to spur growth and contribute to increased revenue, giving the government something of a return on its investment.
“The package will not only stimulate investments and support economic growth, said Mamdouh, “But will also help providing employment opportunities as it mainly targets infrastructural projects.
In times of economic recession, it is an age-old practice to rely on infrastructure projects as a means of stimulating the economy. They encourage foreign investment, improve daily life for citizens, spur industry, and create jobs. The government is taking its cue from this playbook and adding LE 12 billion to its budget that will be mostly used for infrastructure.
According to Mamdouh, LE 5 billion will go towards water and sanitation initiatives, LE 1.6 billion will be allocated for transportation and ports projects, and LE 2.6 billion going to the Ministry of Trade and Industry. It is unclear how the rest will be allocated.
By increasing its deficit spending, the government is assuming some of the burdens that the private sector might otherwise have to in order to encourage spending and investment.
The government is spending LE 1 billion to subsidize a sales tax on capital goods for this calendar year. Intermediary and capital goods will also see tariff cuts to the tune of LE 1.2 billion.
The government has had to walk a fine line since the start of the crisis, balancing the need to encourage foreign investment by reducing tariffs but also to protect Egyptian businesses by keeping them competitive with the outside multinationals.
The latest numbers, announcing such dramatic rises in revenue and expenditure, is further illustration of the government’s strategy of boosting by revenue through increased government spending. How long it’s sustainable, though, still remains the central question.