The Finance Ministry made its budget proposal public yesterday (pdf, Arabic, 146 pp): The government is targeting a primary surplus of 0.3% of GDP in FY 2017-18 according to the Finance Ministry’s budget proposal (and financial statement) presented to the House of Representatives. The primary surplus is expected to increase to 1.7-2% of GDP in FY 2018-19. Overall the budget deficit is expected to come at 9% of GDP in FY 2017-18, down from the 10.5-10.8% projected for FY 2016-17. For the current fiscal year, the budget deficit for the first nine months dipped to 8% of GDP from 9.4% during the same period last year, the Ministry said. The budget proposal assumes GDP growth will be no less than 4.6% in FY 2017-18, which would create jobs, lowering the unemployment rate to 11-12% in the same year and to below 10% in the medium term.

The government plans to cut the budget deficit by growing its revenue base 29.6% y-o-y from FY 2016-17’s levels, predominantly through increased tax revenues, compared to a 21.3% y-o-y increase in expenditures. On the revenue side, the base value-added tax rate will rise to 14% from 13% currently, which is expected to increase tax revenues by 0.2-0.3% y-o-y in FY 2017-18. The government will also work on implementing the civil service act, reform the subsidies regime, and expand cash transfers to qualified welfare beneficiaries in lieu of subsidising commodities. The government will also target reducing the ratio of gross debt to GDP to 95% from the projected rate of 102% in FY 2016-17.

One thing that caught our eye is the government’s plan to completely reshape the subsidy regime by relying proportionally more on cash subsidies. The Finance Ministry plans to cut petroleum product subsidies to 33% of total subsidy spending in FY2017-18 compared. By comparison, petroleum subsidies accounted for 64% of all subsidy spending in FY2011-12. With spending on subsidies already projected to grow by 19.5% y-o-y in FY 2017-18, the additional funds will be allocated towards subsidising electricity and to have the state’s contribution to retirement funds increase to 19% of the total subsidy spending.

Funds earmarked for the Takaful, Karama and other cash-handout programs are set to increase to EGP 15.4 bn in FY 2017-18 from EGP 10 bn a year earlier. This comes despite spending on petroleum products being expected to increase by 214.3% y-o-y in FY 2017-18 because of the increase in average oil prices globally and the drop in the value of the EGP.

The Finance Ministry also says it is committed to maintaining the constitutional spending requirement on health and education, while avoiding accounting tricks that would include reclassifying other items as part of the spending. In total, the Ministry says spending on education, higher education, research, and health will be 10.3% of GDP, slightly higher than the total of 10% of GDP required constitutionally.