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First quarter deficit reaches 2.7 percent of GDP

Egypt’s first quarter deficit reached LE65.8 billion, or 2.7 percent of GDP, according to figures released by the Ministry of Finance.

The government spent  LE140.9 billion from July-September 2014, while revenue during the same period reached LE65.8 billion.

According to the Finance Ministry, Egypt is still on track to reach a 2014/15 year-end deficit of LE240 billion, representing 10 percent of GDP.

In the 2013/14 fiscal year, which ended in June 2014, the deficit recorded LE255.4 billion, or 12.8 percent of GDP.

According to the ministry, Egypt’s GDP grew by 2.2 percent in the 2013/14 fiscal year, driven by public and private consumption and investments. The fourth quarter, from April to June 2014, was particularly strong, with year-on-year growth registering 3.7 percent.

The current administration has prioritized reducing the budget deficit. President Abdel Fattah al-Sisi rejected the cabinet’s initial draft budget, which called for a 12 percent deficit. Just two days before the beginning of the new financial year, Sisi approved a revised budget that trimmed subsidy spending and anticipated higher tax revenues.

First quarter results show that compared to the same period last year, the deficit has grown in absolute terms but narrowed as a percentage of the economy as a whole. The 2014/15 first quarter deficit, LE65.8 billion, is equivalent 2.7 percent of GDP. In the same period last year, the deficit recorded LE59.9 billion, or three percent of GDP.

Despite aggressive moves to lift energy subsidies, both revenues and expenditures increased compared to the same quarter last year.

The government brought in LE76.5 billion during the first quarter, compared to LE58.6 billion in the same period last year. Grants revenue dropped to LE66 million, a sharp drop compared to LE7 billion collected from July-September of 2013. However, growth in both tax revenue and non-tax revenue made up for the loss. Taxes collected on income, profits, capital gains, goods and services and international trade all increased. The government also got a boost from increased Suez Canal revenues and dividends from the Central Bank.

Expenditures increased across the board during the first quarter to reach LE140.9 billion, compared to LE117.2 billion in the same period last year. The government wage bill rose by 17 percent to reach LE52.6 billion. Interest payments rose by 14.3 percent to reach 42.7 billion, mainly due to increase in interest on domestic loans.

Despite moves to restructure subsidies, subsidy expenditure rose by 31.3 percent to reach LE10.2 billion during the quarter. The bulk of this, some LE7 billion, went to the General Authority For Supply Commodities, which provides subsidized wheat, oil, sugar and tea. However, the Ministry of Finance reports that no petroleum settlements were made during the period of study.

More money also went to grants and social benefits, including increases to pension fund contributions and to social insurance pensions, bringing the total expenditure for subsidies, grants and social spending up to LE25.2 billion, a 27.5 percent increase compared to the same period last year.

According to the 2014/15 budget, revenues for the full year are anticipated to reach LE549 billion, with expenditures of LE789 billion.