New Budget Ratified

CAIRO - 3 September 2019: President Abdel Fatah al-Sisi ratified on June 30 the state’s largest ever budget for fiscal year 2019/2020, just a few days after the House of Representatives passed the draft budget estimated at LE1.979 trillion, with spending set at LE1.57 trillion ($95.8 billion). This marks an increase of some LE150 billion from the previous fiscal year, whereas revenues are estimated at LE1.424 trillion (10.6% of GDP). The new budget targets a GDP growth of 6% and a budget deficit of 7.2%. In the FY 2018/2019, which ended on June 30, the government expected a budget deficit of 8.4% and GDP growth of 5.6%.

The new budget also aims to see the primary budget posting a surplus of 2% of GDP and public debt recording 89% of GDP. It further looks to slashing the unemployment rate down to 9.1%, expecting population growth at 2.3%.

Global credit rating agency Moody’s says that Egypt’s new budget for the fiscal year 2019/2020 points to continued fiscal consolidation, and is considered “credit positive.” Moody’s forecasts Egypt’s economy to grow at 5.8% in 2019/2020, which is slightly below the figure targeted in the new budget.

Fiscal deficit and a primary surplus are projected to reach of 7.5% and 1.7% of GDP, respectively, Moody’s predicts. It further fore- sees that Egypt’s general government debt/ GDP ratio will drop to 82.3% in FY 2019/20, from an expected 86.3% in FY 2018/19 and an actual of 92.6% in fiscal FY 2017/18.

Energy subsidies are set to see large cuts in FY2019/2020, with expenditure on fuel products slashed to LE 52.96 billion, down from LE 89.75 billion projected in the previous fiscal year. Electricity subsidies are dipping by 75% to LE 4 billion. This comes as the government is determined to move ahead with further austerity measures as part of its economic reform program launched in 2016. However, the government pledged to spare no effort to alleviate pressure on the most vulnerable by boosting social spending programs.

In a plenary session, Minister of Finance Mohamed Moeit told parliamentarians, “The government vows to take greater social protection measures to help the poor and limited income classes and improve their daily life conditions.” He added that the government has decided to allocate LE89 billion to finance food subsidies including bread, LE82
billion to pension funds, and LE18.5 billion to the Takaful and Karama cash subsidy programs.

A report issued by parliament’s budget and planning committee regarding the new budget and development plan welcomes the government’s decision to keep promoting social protection, curbing both public debt and budget deficit. It called on the authorities to take greater action to cut inflation and bud- get deficit, while boosting non-tax revenues.

“We also hope that the government will do its best to increase non-tax revenues to exceed the current figure of LE 278 billion,” Head of the committee Hussein Eissa said in the report. The committee also stressed the need to rationalize public spending, noting that it should not exceed LE1005.4 billion, excluding debt interest rate payments.

President Abdel-Fattah al-Sisi announced in March a bundle of procedures including a 60% increase in the minimum monthly wages of public sector employees (to 2,000 from LE 1,200) starting June 30, regardless of whether they are subject to the Civil Service Act.

This is the first minimum wage hike for state employees since January 2014, when it was increased to LE1,200 from LE700. The president also announced that the annual raise for state employees will be increased to 7% of the minimum wage, at a minimum of LE75, under the salary scheme of the civil ser- vice law. Those who are not subject to this act will receive 10% of the basic wage as an an- nual raise, at a minimum of LE75.

An exceptional addition bonus of LE150 to all state employees was also among the announced series of measures. Pensions were also raised to LE900 from LE750.

These measures are expected to add more than LE58 billion to the FY 2019/2020 state budget, with the wage hike adding nearly LE30.5 billion to the state’s annual salary bud- get and pensions’ boost costing LE28 billion.

Despite this compensation bundle, some voices in parliament argued that the upcoming energy subsidies’ cut will wipe out these increases and will not be enough to mitigate pressure on the most vulnerable.

Minister of Planning Hala el-Saeed defended the economic reform program in a plenary session, affirming that that it has led to a tangible improvement in the country’s public finances. The reform program helped create new jobs and slash unemployment to 9%, leading to a significant rise in incomes.

Electricity subsidies will be cut starting July 1, although the government had not yet raised fuel prices at press time.

“Please note that we introduce real reforms and not tranquilisers, and that these reforms could negatively affect the lives of many citizens but on the short term, while on the long term they will help improve the economy and create a sustainable kind of development,” the minister stated.

“Continued reduction in energy subsidies will create some fiscal space to expand spending for targeted income transfers and social welfare payments, including an increase in pension transfers to 1.3% of the GDP from 1.2% in FY 2018/19,” Moody’s stated.

In a move aiming to meet the budget’s targets rather than drifting away, the government decided to apply a hedging mechanism against rising crude prices during FY 2019/2020, after introducing it in FY 2018/2019, Moeit tells Bloomberg. Despite becoming self-sufficient in its natural gas needs, Egypt remains a net importer of oil, which makes the state budget vulnerable to global price hikes as every one dollar increase in crude prices costs the budget an additional LE 4 billion, making it harder for the government to meet its targeted deficit.