New Egypt budget sets deficit at 12% of GDP: Finance minister
Deya Abaza , Monday 26 May 2014
State budget for FY2014/2015, awaiting presidential ratification, includes tax hikes and higher spending on subsidised electricity and foodstuffs

Egypt's budget deficit is forecasted to reach 12 percent of GDP, or LE288 billion, in the 2014/2015 fiscal year state budget, according to statements made by the country's finance minister on Monday.

The draft budget, which was passed for final presidential approval by the interim cabinet of Prime Minister Ibrahim Mahleb on Monday, accounts for the cost of servicing foreign debt and constitutionally-required allocations to health and education, as well as financing Egypt's newly-introduced public-sector minimum wage, said Finance Minister Hany Kadry Demian.

Egypt's latest constitution – passed through a national referendum in January – commits the state to spending a minimum of 3 percent of national income on public healthcare provisions, at least 4 percent on pre-university education, 2 percent on higher education and 1 percent on scientific research.

A new minimum wage of LE1,200 was introduced in specific areas of the public sector back in January – a populist gesture which was reportedly forced on the interim government of then-prime minister Hazem El-Beblawi.

Spending on wages will climb 13 percent to reach LE209 billion in the coming fiscal year, an amount which "exceeds the safe limit" and to which the government will "turn its attention" in the future, Demian said, without going into further detail.

The new budget figures also assume the implementation of planned tax and state-subsidy reforms, without which the deficit would reach LE342.3 – or some 14 percent of GDP – by the end of the next fiscal year, said the minister.

Earlier this month, the cabinet approved a 5 percent income tax hike on individual taxpayers earning over LE1 million a year, to be implemented temporarily for a period of three years in an effort to shore up the nation's coffers.

Public spending will total LE807 billion, up 10 percent from this year's updated budget, while revenues are expected to reach LE517 billion, less than this year's estimate, which was buoyed by exceptional foreign grants and financial aid to Egypt totalling $20 billion.

Egypt has been showered with financial aid from oil-rich Gulf nations sympathetic to its interim government following the ouster of Islamist president Mohamed Morsi in July of last year.

Despite promises of further aid, the 2014/2015 budget currently only factors in $2.4 billion, including $1 billion in cash Kuwait pledged back in 2013, and $1.4 billion in petroleum products expected to be delivered in July and August 2014, Yasser Sobhi, head of fiscal macroeconomic policies at the finance ministry, told Ahram Online.

The total energy subsidy bill for the coming fiscal year, accounting for reforms, is set to reach some LE104 billion. Egypt's antiquated and wasteful fuel subsidy system is expected to cost LE130 billion this year, according to official estimates.

The government plans to tackle waste in the fuel subsidy program with the help of newly-distributed smart cards and reduce state-spending through a combination of rationing and price changes.

Subsidies for electricity are set at LE35 billion – compared to LE13.3 billion in this year's budget – as the government plans to divert fuel to combat increasingly frequent power cuts and import more natural gas, which is mostly used for power generation and therefore factored into the electricity subsidy bill, Sobhi explains.

Spending on state-subsidised food commodities such as bread, cooking oil, sugar, and rice targeting 67 million Egyptians – or 80 percent of the population, according the ministry – is set to expand by 11 percent to LE34 billion, with bread subsidies accounting for LE24 billion of the total bill.

State-issued ration cards entitle holders to 2 kg of sugar, 2 kg of rice and 1.5 litres of cooking oil per month.

A new bread subsidy system recently introduced in the Suez Canal city of Port Said earlier this month – and intended for application nationwide this year – is expected to save up to LE6 billion in state spending, Supply Minister Khaled Hanafi said in a televised interview earlier this month.

Food subsidy spending for 2013/14 is expected to hit LE32 billion by June, with more than two-thirds of the amount going to bread subsidies.

The new budget features a 20 percent increase in state-spending on social programs from the previous year, up to LE117 billion.

The government has also prepared a 33 percent increase in the public treasury's financial contribution to insurance and pension funds, with LE12 billion allocated to pensions – itself a whopping 266 percent – to accommodate its beneficiaries, which will be doubled to include 3 million families.

Public debt will remain significant, according to Demian, with interest payments in 2015 totalling some LE202 billion, or 25 percent of total public expenditure.