President Abdel Fattah al-Sisi ratified on Thursday the latest version of the state budget released by the Cabinet late Wednesday, which reduced the projected deficit to 8.9 percent of gross domestic product (GDP), or around LE251 billion, according to a Finance Ministry statement.
As the fiscal year officially began, Sisi sent an earlier draft of the budget back to the Cabinet, ordering a lower deficit than the original projection of 9.9 percent for fiscal year 2015/16. The deficit for the fiscal year ending June 30 amounted to 10.8 percent.
In a statement on its website, the Finance Ministry said that the budget was amended after Sisi ordered a reduced deficit by decreasing spending “without compromising programs targeted at helping the poor.”
Total revenues are expected to increase by 27.7 percent over the previous year to reach LE622 billion, while expenditures are estimated at LE868 billion, a 17.4 percent increase. In the earlier draft budget, revenues were estimated at a slightly lower LE612 billion, while expenditures were higher at LE885 billion.
The public wage bill is set at LE218 billion, an 8.6 percent rise over last year, while spending on subsidies, grants and social benefits will see a 15.4 percent increase to LE231 billion. Similarly, spending on commodities and services was factored in at 36 percent higher than last fiscal year for a total of LE41.4 billion, which the ministry attributed to increased spending on education and health services.
The new budget pencils in LE75 billion worth of investments to finance development projects and infrastructure upgrades, 25 percent more than last year’s figure. Of the total, LE55 billion will be financed directly from the state treasury.
Meanwhile, interest payments on public debt will climb by 25 percent this fiscal year to LE244 billion.
On the revenue side, there is an expected 27.7 percent rise, even though tax revenues are only set to rise 1.8 percent from last year to LE422 billion, or 15 percent of GDP, according to the ministry.
When outlining last fiscal year’s budget, the government had planned to count mainly on a surge in tax revenues on the back of anticipated higher income taxes for the wealthy, the introduction of a capital gains tax and plans to implement real estate and value added taxes. However, in May, the government put the proposed 10 percent capital gains tax on hold for two years after strong resistance from investors. In March, the finance minister announced taxes would be capped at a unified rate of 22.5 percent, overturning a 2014 decision to introduce a 30 percent “millionaires tax” bracket for the country’s top-earning businesses and individuals.
Commenting on the earlier draft of the budget, London-based economic research consultancy Capital Economics had said, “Egypt’s public finances are gradually improving, but the recent watering down of tax and spending measures combined with the relatively unambitious targets set out in a recent draft budget has raised concerns about the government’s commitment to fiscal reform.”
Non-tax revenues, on the other hand, are expected to reach LE198 billion, an increase of 38.6 percent over last year.
Only LE2.2 billion in grants are expected, a dramatic drop from LE25.7 billion in FY 2014/15 and LE96 billion that flowed in after the military-backed removal of former President Mohamed Morsi in FY 2013/14.
Grants have been a lifeline for Egypt’s economy over the past two years, provided mainly by Gulf allies. At the economic conference this past March, officials from Saudi Arabia, Kuwait, the United Arab Emirates and Oman pledged a staggering US$12.5 billion to Egypt, which mirrors the financial support that they gave Egypt in the aftermath of Morsi’s ouster in 2013, which also totaled around US$12 billion.
The amended draft budget slightly decreases spending on social welfare programs from the original one submitted to the president last week to a total of LE429 billion, an 11.8 percent increase over last fiscal year and equaling 50 percent of total public expenditure.
Finance Minister Hany Qadry said in the statement that the budget will see increased spending on targeted cash subsidy programs, which is the direction the government is heading in as it moves to cut more broad subsidy spending.
Qadry added that there will also be more spending on “health programs, mainly supporting health insurance, medicines and state-funded treatment for those who cannot afford it, as well as social housing and developing slum areas and poor villages, subsidizing commodities, namely food and electricity, as well as transport.”
The state treasury will contribute an additional LE19 billion to the social insurance fund this fiscal year, reaching a total of LE52 billion.