Egypt's 2019-20 budget: Setting more hopeful targets

Safeya Mounir , Wednesday 26 Jun 2019

Egypt’s budget for the next fiscal year was approved by parliament this week to a mixed reception by experts, writes Safeya Mounir

Ministry of Finance
Egyptian ministry of Finance headquarter in Cairo

Egypt’s parliament approved the state’s 2019-20 budget this week after the budget bill had been discussed in the parliament’s Planning and Budget Committee and put to a final vote on Monday.

The new budget aims to increase the country’s GDP by six per cent, lower the deficit to 7.2 per cent of GDP, down from the 8.4 per cent targeted this year, achieve a primary surplus of two per cent of GDP, and reduce the public debt to 89 per cent of GDP, in preparation to taking it further down to 80 per cent in 2021-22.

Increasing GDP by six per cent is possible if more foreign direct investment (FDI) flows into the country, said Radwa Al-Sweify, head of research at Pharos Holding, an investment bank. The targeted GDP is close to Pharos’s forecasts, set at 5.8 per cent, for the new fiscal year, she added.

For Alia Mamdouh, a senior economist at Beltone Financial, an investment bank, continuing on the path of constructing national mega-projects, new road networks and investing in the oil and gas sector could raise GDP to the numbers targeted by the government.

Pharos expects the deficit to reach 7.7 per cent of GDP this year, Al-Sweify said. The deficit is tied to the government’s ability to control public debt. Lowering the deficit would require increasing revenues and cutting subsidies, she added.

According to Egypt’s agreement with the International Monetary Fund (IMF), the last reform measure under the plan, related to lifting subsidies on fuel, should take place before the end of this month. This will be the third increase in fuel prices since the government signed the IMF deal in 2016.

Mamdouh said the government’s targeted decrease in debt was optimistic, however, as it depends on converting current liabilities to long-term debts. The Ministry of Finance had earlier announced that such a strategy was in the works.

HC Securities and Investments, an investment bank, forecast that GDP would record 5.9 per cent of GDP in 2019-20 and 6.3 per cent in the following fiscal year.

The value of the pound would remain tied to foreign investment portfolios, it said, attributing the appreciation of the pound against the dollar to growth in the currency carry trade.

The exchange rate of the pound against the dollar would remain stable for the next few months, HC added. The currency will depreciate in the next two fiscal years, and the dollar will record an average of LE17.42 in 2019-20 and LE18.25 in 2020-21, according to HC forecasts.

The budget estimate for the price of the dollar in the new year is close to that made by Beltone’s Mamdouh. She said the dollar would remain within the range of LE16.4 and LE16.5, and that the stability of state revenues in dollars from tourism, exports and Suez Canal earnings would help the dollar to stabilise.

Parliament’s Planning and Budget Committee approved increasing allocations in the draft budget by LE9.7 billion for several sectors. LE1.5 billion will go to the education sector, LE1.9 billion to health, LE2.5 billion to higher education, and LE1 billion each to transport and population, in addition to other allocations to irrigation, religious endowments, youth, sports and local administration.

These allocations came as a disappointment to the ministries of education and health, however. Tarek Shawki, the minister of education, had demanded an increase of LE10 billion to the education budget to reach LE110 billion.

Minister of Health Hala Zayed had previously requested an extra LE30 billion on the health sector’s annual budget to reach LE100 billion in order to be able to apply the new comprehensive health insurance law set to go into effect soon.

According to the constitution, the state should allocate 10 per cent of GDP to the education and health sectors, whereby three per cent go to higher education and scientific research, four per cent to pre-school education, and three per cent to health.

Doha Abdel-Hamid, a public-policy evaluation expert, said Egypt was signatory to international agreements to achieve the UN Sustainable Development Goals (SDGs) by 2030.

If Egypt did not show that it was embarking on the goals, it could be subject to sanctions, she said. The SDGs require increasing spending on health and education, seeing these as the foundations of sustainable development, she stated.

Abdel-Hamid believes containing the budget deficit will require increasing revenues, an adequate tax system, and lowering excessive spending.

Hala Al-Said, the minister of planning, monitoring and administrative reform, pointed out during the parliamentary debate on the budget that the special allocations were not substitutes for the regular allocations earmarked by the Ministry of Finance each year.

Instead, she said, they were complementary and aimed at improving spending efficiency.

According to the new budget, total public spending is set at LE1.574 trillion, up from LE1.424 trillion this year, recording a 10.5 per cent increase. Revenues are put at LE1.134 trillion, with a rise of 14.7 per cent on this year’s budget.

The deficit is set at around LE440 billion, with a slight increase on this year’s budget, and equals 7.2 per cent of the government’s targeted GDP.

Education and health were essential to development, said Alia Al-Mahdi, a Cairo University economics professor, and allocations to these sectors ought to be increased, she added.

The new budget also aimed at an unemployment rate of 9.1 per cent. To reach this figure, national projects would need to increase job opportunities and private-sector projects would need to be able to take on a portion of annual newcomers to the job market, she said.

Abdel-Hamid believes the state does not have a clear strategy to lower unemployment, whether through setting up more factories or developing labour-intensive industries. The government, ought to do more than cite the figures, she said, and it needed to clarify how it intends to reach its targets.

 *A version of this article appears in print in the 27 June, 2019 edition of Al-Ahram Weekly under the headline: Budget sets more hopeful targets

Short link: