Egypt is currently working with International Monetary Fund (IMF) to draft a medium-term revenue strategy (MTRS) that aims to mobilize the country’s revenues, through which revenues would increase by 2 percent of GDP over four years, Minister of Finance Mohamed Maait said on Tuesday.
The strategy is expected to support Egypt’s budget targeted surpluses and to create room for priority spending on health, education and social protection, Maait said at a meeting at the American Chamber of Commerce (AmCham Egypt).
The IMF is expected to complete its final review of Egypt’s IMF-backed Stand-By Arrangement programme in May, which paves the way for Egypt to receive $1.6 billion as a third tranche of its $5.2 billion loan.
The IMF approved the loan for Egypt in June 2020, which will be tapped in financing Egypt’s structural reform programme it announced on Tuesday.
The minister also revealed that the government has received additional support from the IMF, World Bank and other international financial institutions on the international tax and digital economy issues to be followed in Egypt.
Increasing tax revenues
Beyond the pandemic, Maait noted that Egypt targets to widen tax base through increasing the ratio of non-sovereign tax to GDP by 2 percent over four years and through announcing a new simplified VAT system.
“Increasing tax revenues won’t be achieved through imposing new taxes or raising the current tax levels, but through applying a well tax management, efficiency, and automation”, he pointed out.
Maait clarified that the Egypt has lost over 90 percent of its VAT revenues because of the pandemic in 2020 and 2021, but it managed to attain 14 percent increase in the total tax revenues in the current FY2020/21.
He added that the government will continue to execute a tailored incentive programmes aiming at supporting manufacturing, agricultural, and export-led activities.
The government will continue to diversify the funding sources, enhance liquidity and competition of domestic market while also expanding the debt portfolio to reach almost five years to reduce refinancing risks and decrease the cost of borrowing, the minister said.
On fiscal discipline, Maait expounded that the government targets an overall budget deficit to GDP ratio below 5.5 percent by FY2023/2024, a 2 percent primary surplus of GDP, and a debt to GDP ratio of 84.5 percent.
Supporting private sector
Over the medium term, the government prioritises supporting a strong inclusive private sector-led economic recovery with additional incentives to be provided to the sector to make sure that the economy recovery would be diversified, green, and generating adequate productive job opportunities –especially for women, Maait noted.
He also highlighted Egypt’s structural reform programme, the second wave of the country’s economic reforms, which was launched on Tuesday and focuses on easing business environment and boosting competitiveness of the Egyptian economy particularly in manufacturing, agriculture, and IT sector as well as export-led activities.
In this regard, Maait noted that EGP 358 billion are allocated in FY2021/2022 (which starts in July) to finance investments, national mega projects and boost economic activity.
He also stated that the finance ministry will pay EGP 4.2 billion in FY2021/22, in addition to paying EGP 6 billion installments to banks, for the cash payments provided, so far, to exporters to settle their due arrears with Export Support Fund.
Maait noted that Egypt’s FY2021/22 budget focuses on achieving four key pillars -- supporting economic activity, maintaining fiscal discipline, promoting social protection, and human capital development.
On the issue of external debt, Maait said Egypt managed to bring down the debt to GDP ratio by 18 percent in the two years preceding the pandemic – which is the fastest debt reduction of this magnitude recorded by all countries.
He added that despite the negative implications of the pandemic, Egypt managed to contain central government debt levels below 90 percent of GDP.
“If it was not COVID-19, debt to GDP ratio would have declined to 82.8 percent in June 2021 and to 76.2 percent in June 2022,” Maait explained.
He added that the finance ministry is working to meet the requirements to make domestic-currency debt eligible to be settled through Euroclear in order to open the domestic market to a larger audience of foreign investors, saying such a process is expected to be finalized before end of FY2020/21.
For Egypt’s real GDP growth, the minister said the country is expected to approach pre-pandemic levels in FY2021/22 to reach 5.4 percent, after it slowed down to 2.8 percent in FY2020/21.