Finance and planning ministers talk FY2017-18 budget with the House: House of Speaker Ali Abdel Aal referred the Ismail government’s proposed FY2017-18 budget to the House Budget Committee after Finance Minister Amr El Garhy and Planning Minister Hala El Said briefed MPs on the spending bill yesterday, Ahram Gate reports.

So what’s new with the budget? The government had previously announced it was targeting GDP growth of 4.6% and revenues close to EGP 835 bn in FY2017-18 — the latter around 29.6% higher than the current year. Growth in the state’s top line will be driven mostly by higher tax revenues, El Garhy told MPs yesterday, according to Ahram Gate, which are expected to climb to EGP 604 bn from a projected EGP 458 bn in FY2016-17 and contribute around 14.7% of GDP (vs. 13.4% this year). Improvements to fiscal and tax policies should see taxes as a percentage of GDP rise to 18.5% by FY2021-22, the minister added.

The sectors the government sees growing: Four industries are expected to drive the improvement in overall economic performance: construction and real estate, wholesale trade, manufacturing, and agriculture.

What about spending? Total public spending will grow 21.3% to EGP 1.2 tn in FY2017-18 from EGP 994 bn this year, and El Garhy sees the budget deficit narrowing to EGP 370 bn, or around 9% of GDP from an estimated 10% this year and 12.5% in FY2015-16. The government hopes to narrow the gap further to 5-6% in the medium term, according to El Garhy. As we noted previously, the government is optimistic about delivering Egypt’s first primary surplus in a decade, which is estimated at 0.3%.

So what will the government be spending on? The state will continue to take measures to carefully control its spending and efficiently manage its resources, El Garhy said. With petroleum subsidies falling to 33% of the total subsidy bill in FY2017-18 (compared to 64% in FY2011-12) and electricity dropping to 9%, there is room to increase allocations to social welfare and subsidy programs as well as to the provision of basic goods and services (which together will make up around 42.7% of the subsidy bill, up from 26% in FY2011-12).

Food subsidies alone will be up 29.5% in the new budget to EGP 64.2 bn compared to EGP 49.5 bn bn this year, as the number of beneficiaries increases to around 71 mn citizens, while bread subsidy beneficiaries increase to 76.8 mn. Increased spending on social welfare and subsidies is expected to mediate the “temporary” negative impact that economic reform policies have had on consumers. Spending on healthcare and education accounts for the lion’s share of the state’s EGP 51 bn outlay on “social and human development,” Youm7 reports. That splits as 49% earmarked for healthcare, 28% to education, and 23% to scientific research.
Energy subsidies are projected to cost the state EGP 140 bn, with EGP 110 bn of that figure earmarked for petroleum products and EGP 30 bn for electricity. Spending on major national infrastructure development projects is expected to grow to EGP 135.4 bn from EGP 91 bn this year, of which EGP 65 bn will be financed from state coffers. The balance provided through grants, loans, and other forms of financing, the newspaper adds.

Although GDP growth levels had stagnated during FY2015-16 due to a basket of economic challenges, the first phase of the state’s economic and fiscal reform plan is bearing fruit and restoring investors’ faith in the market, El Garhy said. GDP growth is up, reserves are up, FDI is up, and so are exports, Planning Minister Hala El Said.

Things to look forward to: Output from the supergiant Zohr gas field and other recent discoveries are expected to boost Egypt’s natural gas production by 30% once the stations are operational, El Garhy said. That coupled with a 50% increase in the government’s electricity output once the new Siemens power plants come on stream will add to the Egyptian market’s attractiveness and sharpen its competitive edge in the region, especially as the government pursues further reforms to its fiscal and energy policies.