Egypt's budget deficit to reach 14.5% by 2015 without reforms: Finance minister

Ahram Online, Monday 28 Apr 2014

Tax reforms and subsidy restructuring are essential for reigning in budget deficit to avoid worst case scenario, says Finance Minister Hany Kadry Demian

Finance Minister Hany Kadry
Finance Minister Hany Kadry (Photo: Al-Ahram)

Egypt’s budget deficit will likely hover around 14.5 percent of its gross national product (GNP) by the end of the 2014/2015 fiscal year, unless any of the planned reforms in the country's tax system and state-subsidy programme are implemented, Finance Minister Hany Kadry Demian announced on Sunday.

In a phone interview on private Egyptian satellite channel CBC, Demian told host Lamis El-Hadidy that the finance ministry had finished preparing the budget for the coming fiscal year – while at the same time drawing up a comparative budget which did not take into account any of the government’s ambitious economic reforms.

Egypt’s interim cabinet, the second in office since the ouster of Islamist president Mohamed Morsi last July, has vowed to bring the country's budget deficit to 11-12 percent by the fiscal year's end and implement a long-suspended property tax.

Other promises include raising income tax on the wealthy and replacing sales taxes with a comprehensive Value Added Tax (VAT).

While the property tax has yet to be signed into law by interim President Adly Mansour after being recently amended, the income tax hike and VAT are yet to be approved by the cabinet.

The government has also vowed to begin cutting down on the state’s antiquated and bloated fuel subsidy program, which Demian estimates will account for LE130 billion in expenditures on this year’s state budget.

“This is omitting the other part of the subsidies which is not accounted for on the state budget, ” added Demian, referring to petrol products that are produced locally and therefore not factored in as expenditures on the official state budget, “a calculation which makes no sense.”

If the opportunity cost of selling locally produced fuel at market price is counted, total subsidies for this year will reach LE300 billion, said the minister.

Last year, Egypt paid LE120 billion in fuel subsidies, equivalent to a fifth of its total budget expenditures.

It is still unclear when and how the cabinet of interim Prime Minister Ibrahim Mahleb will implement the politically sensitive subsidy reforms.

An official source told Al-Ahram's Arabic newspaper that the cabinet was considering raising the costs of three widely-used forms of petrol – 92 octane, 80 octane and diesel, all of which will be LE1 ($0.14) higher per litre, in what would be the first such price hike in eight years.

"There is no nice time to cut subsidies, but the government has to," former petroleum minister Osama Kamal told Ahram Online on Sunday.

The country's budget deficit reached 14 percent – LE240 billion ($34.8 billion) – in the fiscal year 2012/13.



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