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Sunday, 29 July 2018

FinMin announces FY2017-18 budget results

FY2017-18 budget deficit narrows to lowest point in six years: Egypt’s budget deficit for FY2017-18 narrowed to EGP 433.9 bn, or 9.8% of total GDP, dropping below the 10% marker for the first time in six years, Finance Minister Mohamed Maait announced at a press conference on Thursday on the final figures from Egypt’s FY2017-18 budget, according to a ministry statement (pdf). The deficit fell from 10.9% in FY2016-17. Nonetheless, the deficit was EGP 100 bn shy of its target, he said at the conference, which came a day after Planning Minister Hala El Saeed had announced that that Egypt’s GDP growth accelerated to 5.3% in FY2017-18. Maait attributed the shortfall to “unrealized non-tax revenues,” which fell to EGP 160 bn from a projected EGP 230 bn.

Egypt achieved a primary budget surplus of 0.2% for the first time in 15 years during FY2017-18. The EGP 4.4 bn surplus was used to make interest payments on sovereign debt, which rose by 38.3% y-o-y to EGP 438 bn at the end of June, according to Maait.

State revenues rose 18.5% y-o-y to EGP 781.1 bn in FY2017-18 on tax revenues of EGP 566.14 bn, which rose EGP 157 bn over FY2016-17 collections. This can be attributed to a EGP 78 bn increase in income taxes collections EGP 304.5 bn and EGP 79 bn increase in VAT collection to EGP 261.6 bn. Taxes from real estate grew to EGP 2 bn, while the Tax Dispute Act also helped bring in EGP 16.6 bn Meanwhile, customs revenues grew 6.7% y-o-y, coming in at EGP 36.6 bn.

Increased spending on social welfare and subsidy programs saw state expenditures climb 17% y-o-y in FY2017-18 to EGP 1.2 tn. Total subsidy spending reached EGP 324.4 bn, up from EGP 276.7 bn in the previous year. Commodity subsidies saw the biggest jump, rising by 69.3% y-o-y to EGP 80.5 bn, up from EGP 47.5 bn in the previous fiscal year. The state had also allocated EGP 17.5 bn to cash subsidy programs Takaful and Karama in FY2017-18, an increase of EGP 10 bn over FY2016-17, as the number of beneficiaries grew last year. State coffers also contributed EGP 52.5 bn to pension funds, up from EGP 45.2 bn in FY2016-17. Spending on fuel subsidies also rose, coming in at EGP 121 bn from a projected EGP 110 bn, while Electricity subsidies reached EGP 29 bn.

Portfolio outflows reach EGP 3-4 bn: Meanwhile, Foreign holdings in Egyptian treasuries reached USD 17.5 bn at end-FY2017-18, Maait also said (pdf). “The number represents a sharp drop from the end of March, when holdings stood at USD 23.1 bn,” Reuters notes. Maait blamed the EGP 3-4 bn in foreign outflows from local treasury bonds on the wider EM sell off, which was triggered by rising US interest rates and a strengthening dollar, and exacerbated by a potential trade war between the US and China. “But our yields are still the best among the emerging markets,” he added.

As for oil prices, Maait said that that every USD 1 increase over the USD 67/bbl average set in the FY2018-19 budget would result in a deficit of EGP 3-4 bn.The Oil Ministry had been given the greenlight last week to sign fuel hedging contracts with international banks to prevent higher oil prices from further straining the budget.

Looking ahead, diversifying the sources of state income will be a top priority for the government, which is hoping raise as much as EGP 8-10 bn from the first wave of the state privatization program. Also serving that end will be the EGP 200 bn sovereign wealth fund that Egypt intends to launch later this year.

A wider tax base and more efficient taxation system are also expected to boost inflows into state coffers. Maait — who had previously told us that tax code amendments and policy changes to streamline tax procedures would top its legislative agenda in the fall — said that previous legislative amendments to the income and real estate tax codes, as well as legislation earmarking 5-15% of ministerial slush funds to state coffers, would help drive up revenues for the current fiscal year. Slush funds alone are expected to contribute some EGP 4 bn to state coffers in FY2018-19, he added.

Regulating public spending will also be at the head of the agenda, with a plan already in motion to restructure public sector salaries to clear existing imbalances and redundancies. The transition to a paperless economy through the Government Accounting Act and other policies that ban the use of paper and make electronic payments mandatory is also expected to help the government cut back on costs.

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