Egypt's draft budget slows fiscal reform, a credit negative: Moody's

Ahram Online , Thursday 25 Jun 2015

Credit rating agency Moody's (Photo: Reuters)

International credit agency Moody's has marked Egypt's draft budget as “credit negative” for slowing the government’s medium-term macroeconomic plan. 

Last week, Egypt's cabinet approved the draft budget  for the fiscal year due to start in July, projecting a deficit of 9.9 percent of GDP, down from an expected gap of 10.8 percent in the current fiscal year, but up from the 9.6 percent estimated in the medium term macroeconomic plan.

"This slowdown in fiscal consolidation, while small, is credit negative because it will translate into a smaller reduction of Egypt’s already high government debt and keep the government’s gross borrowing needs precariously high for a longer period," read a statement by Moody's on Thursday.

As President Abdel-Fattah El-Sisi took office in June 2014, his government declared a politically sensitive fiscal reform plan that introduces new taxes and cuts fuel subsidies, raising prices at the pump by up to 78 percent.

The plan aims to reduce the budget deficit to 8-9 percent of GDP by FY 2018/19, from 12.6 percent in FY 2013/14, and growth to accelerate to six percent.

The government also targets a debt-to-GDP ratio of 80-85 percent by FY 2018/19 after soaring to 97 percent in FY 2013/14 on the back of Gulf aid.

Egypt presented its plan to an audience of top international business executives at an economic conference in March as part of its efforts to recover an economy battered by four years of political turmoil.

In mid-June the government successfully issued ten-year dollar bonds in the international market at a yield of six percent.

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