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Monday, 16 April 2018

Budget debate officially kicks off at the House

BUDGET WATCH- House budget debate leaks to Twitter overnight: Previously unreleased figures for the FY2018-19 budget, including details on subsidy cuts and health and education spending, were posted to Twitter overnight courtesy of House of Representative Budget Committee member MP Heytham El Hariri. The numbers El Hariri tweeted vary widely in places from those noted prior in earlier media reports and official statements. The figures appear to be from a summary copy of the budget that the Ismail Cabinet sent to the House. Overall spending on subsidies and welfare will reach EGP 332.29 bn, with total subsidy spending alone falling 3.8% y-o-y to EGP 213.76 bn. Other key figures highlighted in the release include:

  • Fuel subsidies: The government is cutting fuel subsidies 19.1% to EGP 89.08 bn. Reuters had said last week in a report on subsidy cuts that fuel subsidy costs would be cut 26%.
  • Electricity subsidies: These would be cut by 46.6% to EGP 16 bn next fiscal year.
  • Commodity subsidies: Spending on commodity subsidies is expected to grow a whopping 36.6% in FY2018-19 to EGP 86.18 bn, far greater than the 5% reported by Reuters.
  • Export subsidies: Spending on export subsidies will grow a substantial 53.8% to EGP 4 bn.
  • Welfare spending: Overall spending on social welfare will fall 0.5% to EGP 298.94 bn, with public sector wages growing marginally to EGP 2.06 bn.
  • Health and Education spending: The budget for healthcare will grow 12.5% y-o-y to EGP 61.81 bn, while spending on education will grow 8% to EGP 115.66 bn in FY2018-19.
  • Debt service will jump 42% y-o-y next fiscal year to EGP 541.31 bn.

Meanwhile: The government sees revenues from tax collections rising 23.4% y-o-y in FY2018-19 to the equivalent of14.7% of GDP,Finance Minister Amr El Garhy told the House of Representatives on Sunday, according to Al Mal. A pre-budget report released late last week had suggested that tax receipts are projected to contribute EGP 770.3 bn to total state revenues of EGP 989.2 bn in FY2018-19, as the government seeks to expand its tax base, mainly through financial inclusion initiatives that aim to encourage SMEs to join the formal economy. We noted yesterday that the new budget sees inflation dropping to lows of 10%, GDP growing at 5.8%, and the budget deficit narrowing to 8.4%.

The fear in the business community, naturally, is that it is easier for lower-level bureaucrats with significant tax-collection targets to put the squeeze on current taxpayers than it is to broaden the tax base by giving the informal economy incentives to go legit.

The government is also focused on rationalizing spending and reducing its debt levels, according to El Garhy, who said that the new fiscal year will see unutilized state assets and resources put to work, which should help the government achieve its target primary budget surplus of 2%. El Garhy was joined by Planning Minister Hala El Said in briefing MPs as the House budget debates officially kicked off yesterday.Parliament Speaker Ali Abdel Aal referred the FY2018-19 state budget to the House Budget Committee.

Early reactions to the budget in House appear mixed. El Hariri had been the most vocal critic on the Budget Committee — not surprising, since he is a member of the House Club of Trolls otherwise known as the 25-30 Coalition. He criticized heavy spending on debt service, which came at the expense of outlays on health and education, according to Al Mal. El Hariri appears to not like inflows of USD, as he also criticized increases in export subsidies spending. How he made on that committee, we don’t know. House Economic Committee member Amr El Gohary called on ministers to explain how the government plans to reduce public debt, and how it plans to reduce unemployment beyond its stated sub-11% target.

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