Fiscal Balance in Egypt
Egypt - Fiscal Balance
Draft budget continues slow process of mending public finances, while boosting investment and maintaining social safety net
The draft FY 2019 budget approved by cabinet on 18 March aims to further reduce the budget deficit in order to trim the hefty public debt burden. At the same time, public investment will rise notably, while government spending on basic goods and services will increase to help citizens worst affected by high inflation. The budget will now be reviewed by parliament, a process which could take several months.
The budget sets a fiscal deficit target of 8.4% of GDP for FY 2019. This comes after the government recently revised down its FY 2018 deficit target to between 9.5% and 9.7%—the second such downgrade since January—likely driven in part by higher oil prices and elevated debt servicing costs. The budget sees revenues rising 22.0% year-on-year, outpacing a 15.5% increase in expenditure. Revenue generation will be underpinned by a strengthening economy—the budget banks on 5.8% GDP growth. Public investment is set to rise to EGP 149 billion, up from the EGP 125 billion planned for FY 2018, with a particular focus on Upper Egypt. However, investment spending still makes up a small share of the overall budget and is dwarfed by outlays for social protection and wages, budgeted at EGP 332 billion and EGP 266 billion respectively. The government will also boost spending on basic goods and services to EGP 60 billion, in a bid to make basic staples more affordable and avoid social unrest.
Our panelists currently judge that the government is on course to meet the deficit target for FY 2019. Playing in the government’s favor is that the budget assumes an average oil price of USD 67 per barrel, higher than the FocusEconomics panel of commodities analysts’ forecasts. The fuel subsidy bill could thus be less expensive than the government is currently predicting. In addition, further fuel subsidy cuts are in the pipeline for later this year, while the public coffers could receive a windfall from asset sales, as the government looks to reduce its stakes in several companies. However, downside risks are apparent. The FY 2019 growth forecast appears slightly optimistic compared to our panelists’ projections, while there remains a risk that spending on social programs and wages could grow faster than expected if social pressure mounts.
Egypt Fiscal Balance Forecast
FocusEconomics Consensus Forecast panelists expect the fiscal deficit to reach 9.5% in FY 2018, down 0.5 percentage points from last month’s forecast, and 8.1% in FY 2019.
Egypt - Fiscal Balance Data
|Fiscal Balance (% of GDP)||-11.5||-11.0||-12.0||-10.7||-9.5|
5 years of economic forecasts for more than 30 economic indicators.
Egypt Fiscal Balance Chart
Source: Central Bank of Egypt.
|Bond Yield||13.70||0.0 %||Dec 31|
|Exchange Rate||16.04||0.0 %||Jan 01|
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May 14, 2020
At its scheduled monetary policy meeting 14 May, the Central Bank of Egypt (CBE) left the overnight deposit, overnight lending, and main operation rates unchanged at 9.25%, 10.25% and 9.75%, respectively.
May 11, 2020
The economy expanded 5.6% year-on-year in the second quarter of FY 2020 (October–December 2019), which was unchanged from the growth rate of the first quarter. Private consumption growth accelerated to 2.7% in October–December (July–September: +1.0% year-on-year), seemingly supported by lower inflation and cuts to the overnight deposit rate by the Central Bank, and despite an uptick in the unemployment rate to 8.0% from 7.8%.
May 10, 2020
Consumer prices increased 1.3% in April compared to the previous month, up from the 0.6% increase in March and mainly due to a sharper increase in food and vegetable prices.
May 5, 2020
Egypt’s Purchasing Managers’ Index (PMI), which measures business activity in the non-oil private sector, fell to 29.7 in April, down from 44.2 in March and the lowest reading since the current survey began in April 2011.
April 15, 2020
Consumer prices were increased 0.6% in March compared to the previous month, up compared to the flat reading in February.