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Sunday, 18 November 2018

Egypt’s Finance Ministry sees the economy growing at a blistering 6.5% in the state’s 2019-20 fiscal year

The Finance Ministry sees the economy growing at a blistering 6.5% in the state’s 2019-20 fiscal year, up from a projected 5.*% this fiscal year. That’s perhaps the most interesting take away from the ministry’s 2019-20 budget guidelines (pdf). The ministry sees GDP growth accelerating to 6.9% in 2020-21 and 7.3% in 2021-22. The budget guidelines set the framework on which the FinMin and other ministries and agencies will build next year’s budget. Policy makers are starting the process with an edge on the expense side as global oil prices have come down 20% from their high earlier this fall. The ministry is hoping to maintain its 2% primary budget surplus during the next fiscal year.

Budget deficit, unemployment seen falling: Egypt’s budget deficit is expected to fall to 7% of GDP by FY2019-20, down from 8.4% of GDP in the current fiscal year, the document shows. The Finance Ministry aims to see the deficit then shrink to 5.6% of GDP in 2020-21 and 3.9% in 2021-22.

It also sees unemployment falling to 8% by 2021-22 and the poverty level falling to below 25%.

Cutting fuel subsidies and widening tax base: Sources had previously told us that a substantial reduction in the budget deficit will come as a result of eliminating fuel subsidies by next fiscal year, as agreed under the IMF_backed reform program. The government is also hoping to widen the tax base by passing the SMEs Act and bringing in smaller enterprises into the formal economy, according to the documents.

Tax efficiency to play a hand in raising revenues: The government is also planning to increase tax revenues by implementing an electronic billing and tax payment platform. Finance Minister Mohamed Maait had said that the electronic platform, which will set a single tax ID number for companies to pay all their taxes, will be implemented in 1 May 2019. The ministry is expecting additional revenues from reforming the customs system (though amendments to the Customs Act) and amendments to the Real Estate Tax Act. Notably, Maait has promised not to raise tax rates during this process.

Gov’t to issue c. USD 4 bn in international bonds next year: The government plans to issue EGP 75 bn (or around USD 4.2 bn) in foreign-currency-denominated bonds in FY2019-20, we’re told, alongside some EGP 539 bn in local treasuries next fiscal year. The budget document is clear, though, that the ministry plans to reduce Egypt’s public debt to 79.3% of GDP by 2021-22 from 98% today.

How much has the zombie apocalypse bit? Yields on Egyptian debt soared to an average of 19% this fiscal year year, the document suggests, significantly above the 14.9% in the current budget as Egypt pays a premium to keep hot money investors here.

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