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Tuesday, 8 December 2020

Egypt’s budget deficit down, remittances up

Egypt’s budget deficit shrank to EGP 134.9 bn, equivalent to 2.1% of GDP in 1Q2020-2021 compared to 2.3% during the same period last year, according to a Finance Ministry report (pdf). The report attributes the narrowing deficit to an 18.4% y-o-y uptick in state revenues to EGP 204.7 bn, which was partially driven by a 14.1% hike in tax revenues. On the flipside, state spending was up 11% y-o-y to EGP 336.8 bn in the quarter. Finance Minister Mohamed Maait said last month based on preliminary figures that the budget deficit had narrowed to 2.6% of GDP during the first four months of FY2020-2021, compared to 3.1% over the same period last year.

Where did we spend? Spending on civil servants’ salaries and compensation rose 5.1% to EGP 78.7 bn, while spending on pension funds increased by EGP 22.5 bn to EGP 28.5 bn. The government had signed off on a 14% rise in pensions as of the beginning of the current fiscal year. State spending on healthcare and medicines increased 2.3%, reaching EGP 1.2 bn, while subsidies for essential goods hit EGP 12.4 bn. The state dished out EGP 1.7 bn on export subsidies, up from EGP 900 mn during the comparable period a year earlier.

The long term outlook: Fitch solutions’ monthly MENA report in November forecast a budget deficit of 10% on average between now and 2024, while the IMF’s October Fiscal Monitor Report forecast the deficit widening from 7.5% to 8.1% by the end of the current fiscal year, before rapidly narrowing to 5.2% in FY 2021-2022 and 3.8% by FY2024-2025.

Remittances rebound in 3Q2020

Remittances from Egyptians living abroad shot up 19.6% y-o-y in 3Q2020 to USD 8 bn from USD 6.7 bn over the same period last year, according to a Central Bank of Egypt statement (pdf). Remittances from Egyptians abroad increased by 11.6% in 9M2020 compared to the same period the year before, hitting USD 22.1 bn. Though remittance inflows were rising steadily when the covid-19 pandemic began, they took a 10% dip in 2Q2020. The World Bank predicted last month that remittances from Egyptians abroad could slow down next year if GCC economies continue to come under pressure from low oil prices and slow economic growth, hampering Egyptian expats’ earnings.

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