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Monday, 23 May 2016

Spotlight On: Finance, planning ministers present FY2016-17 budget and Year One of Vision 2030 to the House

Finance Minister Amr El Garhy presented a detailed overview of his FY 2016-17 budget to the House of Representatives 50 days before the new fiscal year is set to begin. The government is targeting GDP growth of 5.2% (with GDP set to come in at EGP 3.2 trn, Al Mal reports) for 2016-17, accelerating to 6.2% by FY 2019-20. The budget deficit for the coming year is set to fall to 9.8% of GDP (or EGP 319.5 bn, according to AMAY) from a projected 11.5% of GDP this year on total expenditures of EGP 936 bn. Public debt should drop to 97% of GDP as a result, the minister said.

Spending on social services is forecast to grow 12.5% to EGP 421 bn, with some EGP 46.3 bn earmarked for food subsidies and petroleum and fuel subsidies set to fall 43% from this year’s level to EGP 35 bn, according to Al Borsa. The cut in fuel subsidies is based on oil at USD 40 a barrel, despite it edging towards USD 50 of late. The new budget has also allocated EGP 29 bn in spending for power subsidies, according to a Finance Ministry statement. Some EGP 33 bn will be spent on subsidized housing in the new budget, with an ultimate target of EGP 100 bn.

El Garhy’s presentation stands out for its clarity, depth and timeliness, but that hasn’t stopped AMAY from noting that it was technically due to the House 30 days before the new year fiscal year, which would have meant that El Garhy would have had to present the same day he was appointed Finance Minister.

El Garhy is banking on new revenue streams including the value-added tax, reforms to the real estate tax system and a new customs act that will enforce strict punishments on customs evaders and reduce times and fees for importers. The ministry also plans to manage public debt more efficiently and to better manage its sources of financing, according to an emailed statement.

Also yesterday, Planning Minister Ashraf Al Araby presented the government’s strategy in the first year of its Vision 2030 (mercifully referred to by the domestic press as year one and not Year Zero). The plan, detailed here in Al Masry Al You, is a rehash of the main targets and programs of the Ismail Cabinet’s work plan, which was presented to the parliament and which we covered extensively. The broad strokes of the plan’s economic planks include a focus on targeted sector growth through key development projects:

  • Power: Completing the construction of 8 power plants producing 20 GW and completing renewable projects which will produce 3.3 GW;
  • Agriculture: Completing the 1.5 mn feddan land reclamation project;
  • Industry: Rehabilitating factories; developing utilities for existing industrial zones and building new utility infrastructure across Egypt’s governorates; completing the Robeky leather industries complex; establishing a EGP 1 bn company to manage the furniture city project;
  • Tourism: Targeting 10 mn tourists by promoting the sector in multiple markets;
  • Transportation: Completing 16 new highways;
  • Telecoms: Begin constructing seven new tech zones/

Key macro drivers on which the plan focuses include:

  • Improving the investment climate by (you guessed it) effectively implementing the one-stop shop policy; improving the legislative climate by implementing laws including the bankruptcy act; increasing access to GAFI by opening more branches across the nation; promoting investments in untapped and poorly developed territories.
  • Improving the business climate in key sectors by completing the payment arrears owed to foreign E&P companies by the end of 2016; reducing time to obtain licenses for factories; encouraging investments in tourism; and bolstering investments in internal trade.
  • Improving the lot of SMEs by enforcing the Central Bank of Egypt’s initiative; studying establishing major microfinance institutions in cooperation with Egypt Post; facilitating credit to SMEs by simplifying licensing procedures; amending legislation on competition which would allow SMEs to compete for tenders and benefits.

The budget and Vision 2030 plan are now with the House Budget and Planning committee for review; both will then go up for a vote before the full House, Al Borsa reports.

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