98% drop in aid prompts widening deficit
Courtesy: shutterstock.com
 

Despite a jump in tax revenues, a dramatic fall in grants paired with spending increases led to a deficit of 4.6 percent of gross domestic product (GDP) in the first five months of this fiscal year, compared to a 3.3 percent deficit in the same period last year.

According to the Ministry of Finance’s monthly report for December, the deficit for July-November 2014 reached LE107.9 billion, compared to LE65.9 billion at this point last year.

Revenue Chart July-November 2014

The government collected more than LE91.6 billion in tax revenues from July-November 2014, a 33.8 percent increase compared to the same period last year. 

The strongest growth came from taxes on income, capital gains and profits, which grew by 45.3 percent to hit LE32 billion. Taxes on corporate profits, including state entities like the Suez Canal and the Central Bank of Egypt (CBE), accounted for more than LE19.5 billion, while taxes on wages reached LE9.7 billion. 

Taxes on goods and services grew by 32.8 percent to reach LE43.4 billion, while taxes on international trade grew by 50 percent to reach LE7.9 billion.

Income from other categories, such as interest income and dividends from state-owned companies, also grew, despite the state recording LE0 in petroleum royalties so far this fiscal year.

However, the combined effect of this growth was not enough to outweigh the drop in grants, which plummeted from almost LE37 billion from July-November 2013 to just LE666 million in the same months this year.

Spending Chart July - Nov 2014

Despite government pledges to rationalize spending, the first five months of the 2014/15 fiscal year saw growth in every category.

Spending on wages and compensation ballooned by 16 percent to reach LE79.6 billion, largely due to minimum wage allocations and special allowances for teachers. 

The 39.8 percent rise in subsidy spending, which hit LE21.2 billion,  was driven largely by subsidies to state wheat buyer GASC, which almost doubled to LE12 billion. The ministry noted that the period studied did not include any petroleum settlements.

Social benefits, meanwhile, amounted to LE19.6 billion, almost 40 percent more than the same period last year. Of that, LE16.6 went to pension funds, while an additional LE2.8 billion went to social insurance pensions.

Debt Service Chart July - Nov 2014

Debt service was on the rise, driven primarily by payments on domestic debts, particularly treasury bills and bonds, which have been crucial for financing the deficit. 

The ministry has not yet reported updated figures for total government debt. As of June 2014, the combined total of domestic and foreign debt stood at just over LE1.9 trillion.

Table Revenue Expenditure so far 2014

The period covered in this report represents slightly more than 41 percent of the 2014/15 fiscal year. The 2014/15 budget estimates total revenue at LE569 billion, and expenditure at LE789 billion, with a budget deficit amounting to LE240 billion. Spending and revenue will naturally fluctuate throughout the year, but looking at where Egypt is thus far, it appears that although spending is below expectations so far this year, low revenue threatens to put Egypt above its targeted deficit for the current fiscal year.

Note: According to Mada Masr’s calculations, the figures listed for revenue and expenditure July-November indicate a deficit of LE105.8 billion. However, for consistency’s sake we have used the LE107.9 billion figure given by the Finance Ministry.

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