Egypt’s fiscal consolidation in upcoming budget is credit positive, says Moody’s: Egypt’s plans for continued fiscal consolidation in FY2019-20 is credit positive and “conducive to reducing Egypt’s general government debt/GDP ratio to 82.3% from an expected 86.3%” in FY2018-19, Moody’s said in an issuer comment last week (pdf). The ratings agency expects GDP to grow at a 5.8% clip — a slightly lower figure than the 6% set by the government — and accordingly sees the fiscal deficit at 7.5% and the primary surplus at 1.7% of GDP. The draft state budget, which is currently under review at the House of Representatives, puts these figures at 7.2% and 2%, respectively.

Fiscal consolidation means cutting expenditure on energy and food subsidies, which will create some breathing room for the government to slightly increase its spending on social welfare and pensions, Moody’s notes. Petroleum spending will be cut back to 0.7% of GDP, down from 1.7% in FY2018-19 on the back of the new fuel pricing mechanism, which came into effect at the beginning of the month.

Minimum wage increase for state employees will keep wage spending from decreasing as initially planned: The increase of the national minimum wage to EGP 2,000 per month from EGP 1,200 — which will come into effect with the start of the next fiscal year — “will result in the wage bill remaining at about 5% of GDP as compared to a further reduction to below 5% of GDP under IMF program parameters, and significantly lower than the 8.5% of GDP registered in fiscal [year] 2014.”

Moody’s thinks we’re going to see calls for a private sector minimum wage, writing that “in light of the significant real wage and purchasing power erosion that middle- and low-income households have faced following Egypt’s currency flotation in November 2016, we expect calls for similar minimum wage adjustments in the private sector to follow.”