Cityscape in Egypt

Egypt Special March 2020

Egypt: Government loosens purse strings as coronavirus rages

On 26 March, the government approved its budget for fiscal year 2021, which starts in July. The budget raises annual spending by approximately 8% to EGY 1.71 trillion, in large part due to a substantial increase in investment and public sector wages. In addition, to help cope with the spread of coronavirus, healthcare spending will increase, targeted towards expanding health insurance coverage, developing new hospitals and purchasing hundreds of new ambulances. Despite higher spending, the government targets a fiscal deficit of 6.3% of GDP in FY 2021, which is lower than the 7.2% target for this fiscal year. Given that economic growth will slow in the coming months due to the fallout from the coronavirus pandemic, this lower fiscal deficit target appears ambitious.

In recent weeks, the government has also approved measures to help businesses and consumers grappling with the financial costs of the ongoing coronavirus containment measures, which include curfews from 7pm to 6am, the partial closure of most shops, and the closure of schools, universities and airports. The government has announced an EGP 100 billion fiscal stimulus plan that focuses on supporting the critical tourism sector, but also raises pensions, lowers energy costs for industry and postpones capital gains tax. Separately, the Central Bank has slashed interest rates and announced unconventional measures such as permitting repayment delays for six months on most loans. All in all, government and Central Bank measures to support businesses and consumers should help mitigate the likely slowdown in store for the economy.

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