In the absence of a parliament or an alternative forum for public debate, few details were known about Egypt’s 2015/16 budget until it was already in effect.
In what appears to be becoming an annual tradition, President Abdel Fattah al-Sisi rejected the Cabinet’s initial budget, asking that the deficit be reduced to 8.9 percent of GDP, down from 9.9 percent in the draft budget.
Little information was released beyond general goals of reducing the fiscal deficit while supporting social programs and encouraging investment.
With a final budget released this week via the Official Gazette, it is possible to get a better sense of how the government aims to balance these aims.
A year ago, as the details of the 2014/15 draft budget were revealed, there was much talk about an austerity budget — despite the fact that ultimately, spending was parceled out much as it had been under previous budgets.
This year, there has been far less talk of austerity. The 2015/16 budget, however, looks like much more of an austerity budget than the previous edition did — or at least a budget putting a strong emphasis on fiscal consolidation.
Debt service takes a bigger piece of the pie than in previous years — not entirely surprising following the announcement earlier this month that Egypt’s domestic debt has surpassed LE2 trillion.
Meanwhile, a corresponding slice has been shaved away from subsidies and social benefits.
Looking at the raw figures, it’s clear that subsidies and social benefits is the only spending category expected to contract this year.
A more detailed breakdown of social spending shows that most of the planned savings come via reduced allocations for petroleum subsidies.
Egypt’s petroleum subsidies — which have eaten up as much as 20 percent of past budgets — are generally regarded as wasteful and poorly targeted. People wealthy enough to own vehicles are the direct beneficiaries of the subsidy, and economists and funding organizations have for years been urging Egypt to reform its subsidy system.
However, putting up fuel prices — as the government did last summer — has a ripple effect across other sectors. Higher fuel prices drive up the cost of food, transportation and other consumer goods. After last summer’s subsidy cuts, inflation shot up above 11 percent, placing a heavy burden on the poor.
The current orthodoxy among development agencies is that cuts to fuel subsidies should be accompanied by increased spending on programs that will help the poor cope with rising prices. The 2015/16 budget does call for increased spending on consumer goods subsidies (a category that includes key food commodities), and pension funds, which could help cushion the shock for some consumers.
The government has not yet released final figures for petroleum subsidy spending during the fiscal year, or explained clearly how it plans to achieve additional savings this year. A plan to require customers to use a smart card to purchase subsidized fuel was delayed at Sisi’s request. One thing seems clear: If the government is serious about reaching this target, Egyptians can expect to see higher gas prices this year.
On the revenue side, the government is looking to wean itself off of foreign aid, relying more on taxes and other non-tax sources, such as the sale of state land, petroleum royalties and Suez Canal revenue.
Without complete data from the 2014/15 Fiscal Year, it is difficult to assess whether these goals are realistic. Details about proposed new taxes — most importantly, plans to introduce a Value Added Tax — have also not been made public.
As of the end of May 2015 — eleven months into the 2014/15 Fiscal Year — the government had only received LE350 billion in revenue, LE261 billion of which was from taxes. With accounts still not updated, it is possible Egypt could end the year in a better financial position than May figures indicate.
How close Egypt comes to reaching its 2014/15 targets will signal how likely the government is to achieve its revenue aims for the current fiscal year.