Egypt’s deficit likely below forecast-minister

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CAIRO: Egypt’s budget deficit for the financial year that ends on June 30 is likely to come in below the target of 8.4 percent of gross domestic product (GDP), Egyptian Finance Minister Youssef Boutros-Ghali told Reuters.

The state would also spend less on subsidies, which now account for more than a quarter of total spending, in 2010/11 so it can spend more on education, health and other social services without increasing the deficit, he said in an interview.

Egypt had forecast a deficit of LE 98.9 billion ($17.4 billion) in 2009/10 on spending of LE 323.9 billion.

Asked about the deficit, Boutros-Ghali said: "It will be somewhere between 8 and 8.2 (percent) — or, at worst, 8.4."

"In the face of what is happening in the rest of the world, I count this as a major achievement," he said late on Monday, ahead of the new financial year which starts on July 1.

He based his new estimate on monthly revenue figures that had come in better than expected, but said he was still awaiting expenditure figures before giving a final deficit number.

"I have been very strict in expenditure control. I stuck to what was in the budget fanatically, and the economy turned out better than I had anticipated," Boutros-Ghali said.

"In the third and in the fourth quarters (of Egypt’s financial year), tax receipts were better, Suez Canal receipts were better, sales tax receipts were better. Income tax receipts were not as bad as we expected them to be," he said.

The government financed the deficit mainly through domestic sources such as Egyptian pound Treasury bills and bonds. In April, it sold dollar-denominated bonds worth $1.5 billion.

Egypt’s domestic debt was LE 86.3 billion and foreign debt was $32.3 billion, central bank figures for March showed.

"Our debt-to-GDP ratio has moved by two points, from 80 percent (in 2008/09) to 82 at the end of this year. Next year, it is scheduled to come down to anywhere between 74 and 77 percent of GDP," Boutros-Ghali said.

Total debt has dropped from the equivalent of 125 percent of GDP in 2004, the year Prime Minister Ahmed Nazif and his cabinet of economic reformers took office.

In 2010/11, the government will spend a forecast LE 101 billion on subsidies, more than a quarter of its total forecast spending of LE 394.5 billion, Boutros-Ghali said.

"We need to bring them down. Over the next two, three years, we are going to be bringing them down significantly," he said.

Tackling subsidies

For 2009/10, the government had forecast subsidy spending at LE 59.8 billion. The increase for 2010/11 is due to higher oil prices, changes in budget assumptions for oil prices and increased consumption of subsidized products in Egypt, he said.

"Consumption is growing very significantly," Boutros-Ghali said, adding that energy subsidies alone were equal to education and health combined. The main subsidized goods and services are energy, housing, exports, transport subsidies and food.

"One of the reasons we want to tackle subsidies is not only because they are not good for the budget, but because we need to limit consumption. And we will do that by raising prices and lowering subsidies."

The government has introduced an electronic ration card for a basket of household goods it sells at reduced prices. The system, which limits subsidies to the very poor, has now been implemented almost throughout the country, Boutros-Ghali said.

"Because my budget deficit is taken into account, it’s coming down by its own. I don’t need the subsidy reduction to bring the deficit down," he said.

"But if I’m going to improve the standards of services and healthcare and education, I’m going to have to bring the subsidies down."

Egypt plans to introduce a coupon system for butane cooking gas after mid-September, when the fasting month of Ramadan ends.

"I have the coupons, they’ve been printed, they’re ready to go. It will be implemented after Ramadan."

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By Reuters
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