On Tuesday, media reports revealed the main features of the draft budget for fiscal year (FY) 2018/19, showing a reduction in petroleum subsidies to EGP 89bn, down from an expected EGP 120.9bn in FY 2017/18, and food subsidies will increase to EGP 86.2bn, up from EGP 82.2bn in FY 2017/18.
Local experts and macroeconomic analytical organisations said that the new goals for the FY 2018/19 budget agree with their expectations, while the latest IMF staff report issued in January 2018 showed various differences regarding the values of all kinds of subsidies, including fuel and food subsidies, social grants, and benefits.
The IMF staff report expected that total subsidies and social benefits will record EGP 346.2bn in FY 2018/19, compared with EGP 332.29bn in the draft budget for FY 2018/19 and EGP 331.38bn in FY 2017/18.
The IMF expects fuel subsidies to be reduced to EGP 48.4bn in FY 2018/19, while the draft budget sets out EGP 89.08bn in FY 2018/19 and EGP 120.93bn in FY 2017/18.
Sherif El-Diwani, former CEO of the Egyptian Centre for Economic Studies (ECES), clarified that the revealed indicators for the FY 2018/19 budget are more realistic than the IMF’s previous expectations, especially in terms of fuel subsidies.
“Things were changed; oil prices are expected to increase, which will reflect on the fuel subsidy bill,” said El-Diwani, noting that major research institutions expect the oil prices to range from $75 per barrel to $85 per barrel, while the FY 2018/19 budget counts it as $67 per barrel.
“I think that the next IMF review will show major changes of the macroeconomic indicators for FY 2017/18 and FY 2018/19; moreover, the subsidies values,” added El-Diwani.
According to the new budget, food subsidies are expected to reach EGP 86bn, while the IMF expects food subsidies to record EGP 90.6bn in FY 2018/19, up from EGP 82bn in FY 2017/18.
Mohamed Abo-Basha, MENA economist at EFG Hermes’ research department, said that cutting fuel subsidies was expected, adding, “the good news is that the new budget targets increasing public salary spending to EGP 266bn, up from EGP 240bn in the current budget, which will help people a lot in facing the price increases.”
Meanwhile, Beltone Financial said in a report on Wednesday that the revealed indicators for the FY 2018/19 budget—which targets a fiscal deficit of EGP 439bn, representing 8.4% of GDP in FY 2018/19, down from an estimated 9.8% of GDP in FY 2017/18—comes slightly below their expectations of 8.7% of GDP, on the back of a higher subsidies bill expected at EGP 120bn.
Beltone added that oil prices are set at $67 per barrel, up from $55 per barrel in FY 2017/18, and the local currency exchange rate at EGP 17.25/USD.
Beltone’s report said that revenues are targeted at EGP 989.2bn, up from an expected EGP 813.4bn in FY 2017/18, driven by a 23% growth in tax revenues to EGP 770.3bn, adding, “the government depends on the value-added tax revenues to support its tax revenues in FY 2018/19, which are targeted at EGP 320bn, up from an expected EGP 255bn in FY 2017/18.”
The report said that the targeted governmental revenues come above Beltone’s expectations of EGP 963bn in FY 2018/19.