Cityscape in Egypt

Egypt Politics April 2019

Egypt: Government remains on fiscal consolidation path with FY 2020 budget

On 27 March, the government of Egypt—which is currently pursuing a three-year IMF-backed reform program to strengthen its finances—approved its budget for fiscal year 2020, which covers the period from July 2019 to June 2020. Although the government forecasts a lower fiscal deficit and higher economic growth for this period than in FY 2019, analysts are skeptical; our Consensus Forecast currently foresees a slower narrowing of the deficit than the Egyptian government expects, as well as more moderate growth. Nevertheless, expectations of fiscal improvement and economic strength prompted Fitch Ratings to upgrade its credit rating for Egypt on 21 March to B+ from B, with a stable outlook.

Total expenditure in the FY 2020 budget amounts to EGP 1.6 trillion (USD 91 billion), up from EGP 1.4 trillion in the previous budget. A large portion of this additional expenditure is geared towards raising public-sector wages and increasing government investment. On the other hand, spending on debt repayments is to be cut substantially, and fuel subsidy spending is penciled in to drop to EGP 53 billion from EGP 89 billion. However, this subsidy allocation is dependent on the future oil price and exchange rate of the Egyptian pound: While the government forecasts an average oil price of USD 68 per barrel over FY 2020, which is broadly in line with our Consensus Forecasts, the government’s EGP 17.46 per USD forecast is stronger than our panel’s EGP 18.79 per USD projection, suggesting the fuel bill might end up being larger than expected.

Total revenue is to rise to EGP 1.1 trillion in FY 2020, up from EGP 1.0 trillion in FY 2019. Higher revenues are primarily pinned on an economic growth forecast of 6.1%, which tops our Consensus of 5.4%, and reforms to widen the tax base. Meanwhile, the government sees the fiscal deficit narrowing to 7.2% in FY 2020, which is also more optimistic than our panel’s 7.5% estimate. In sum, thanks to a more conservative stance on spending, the government is likely to strengthen its finances in FY 2020, which would be fitting given it should wrap up its IMF-backed reform program before the fiscal year ends. What remains to be seen, however, is the speed at which this strengthening is achieved.

Egypt Fiscal Balance Forecast

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