House expected to pass the FY2018-19 budget today, FinMin holds fast on oil price projections as global rally looks set to cool
BUDGET WATCH- Will parliament pass the FY2018-19 budget today ? The House of Representatives is expected to pass the FY2018-19 budget today (uncharacteristically early) after the general assembly wrapped up yesterday its discussion of the Budget Committee’s report, according to Ahram Gate. Health and education both received additional earmarks to fund initiatives including the new K-12 educational system and the Universal Healthcare Act, both of which are expected to launch later this year. You can tap or click here for our budget refresher.
FinMin holds fast on oil price projection at USD 67/bbl in the FY2018-19 budget: The Finance Ministry appears set to keep its projected average oil price in next year’s budget at USD 67/bbl, Finance Minister Amr El Garhy told the House on Monday, according to Al Mal. He noted that while oil prices had recently surged above the USD 80/bbl mark, prices have recently cooled. Egypt’s oil agreements with Saudi Arabia and Russia will help keep supply and price in Egypt stable, he added. A government document obtained by Ahram Online suggests that the government has been importing the black stuff at a price of USD 75/bbl. Parliament had been so concerned of the impact this rise would have on next year’s budget it debated whether to to set aside more funds in case the government overshoots its deficit target for the year.
This comes as hedge funds are reportedly scaling back their wager on higher oil prices as OPEC and Russia discuss raising production ahead of their meeting on 22 June, the FT reports. Bloomberg is already teasing it as possibly “OPEC’s worst meeting ever, part 2.”
Egypt’s new budget can sustain global oil prices as high as USD 80/bbl, EFG Hermes’ Mohamed Abu Basha suggests in a research note to clients yesterday. While higher oil prices do pose a “temporary downside risk to economic growth” by adding to inflationary pressure and, in turn, affecting the recovery in consumption, Egypt’s strong fundamentals and policies will see it through, according to Abu Basha. He explains that average oil prices of USD 75-80/bbl would weigh the current account deficit down by as little as 0.8%, which would still allow Egypt to pursue fiscal improvements (such as a narrower budget deficit of 8.4% of GDP and a primary surplus of 2%).
Nonetheless, inflationary risk is clearly skewed to the upside, warned Abu Basha. These risks would be especially pronounced if the higher oil prices continue to 2019. “Such uncertainty clearly poses the risk of a relatively extended interruption of the easing cycle, possibly well into 2019,” he added. In the short-term, this risk would depend on how much the government decides to raise fuel prices to cushion the budget deficit against high oil prices, possibly driving inflation to 14-15% in 2H2018.