With debt service costs soaring, budget deficit hits LE311 bn by May

Eleven months into the 2015/16 fiscal year, Egypt’s budget deficit had already exceeded the target for the full year. From July 2015 to May 2016, the deficit grew to LE311 billion, or 11.2 percent of gross domestic product, according to Ministry of Finance figures. After a last-minute intervention by President Abdel Fattah al-Sisi, the 2015/16 budget called for a year-end deficit of LE251 billion, or 8.9 percent of GDP.

The details of the budget for the current fiscal year, which was approved by Parliament last week and came into effect on July 1, have not yet been published, but the draft budget approved by the Cabinet in March anticipated a deficit of around LE309 billion for the 2016/17 fiscal year, or 9.9 percent of GDP.

During the first 11 months of 2015/16, government revenue increased slightly year-on-year to reach LE356.6 billion, compared to LE350.1 billion in the first 11 months of the 2014/15 fiscal year. That increase was outpaced by expenditures, which grew to LE655 billion, compared to LE601.4 billion in the same period a year earlier.

Much of the increase in government spending came on the back of rising interest payments on government debt, the largest expenditure category. Interest payments soared by 35.9 percent year-on-year to reach LE210 billion. The Finance Ministry has not yet released official figures on government debt in 2016, but as of December 2015 Egypt’s domestic debt had grown to LE2.37 trillion, compared to LE1.89 trillion in December 2014. The government’s foreign debt reached US$23.8 billion in the same period.

Spending on employee compensation grew by 7.4 percent to reach LE184.9 billion, which the Finance Ministry notes is the slowest rate of increase in the past three fiscal year.

The data released by the Finance Ministry does not include petroleum subsidies, making it difficult to predict subsidy spending for the fiscal year. Ministry figures do indicate that electricity subsidies were up by 17.3 percent to reach LE28.4 billion. Food subsidy spending grew by 12.6 percent to reach LE40.4 billion, despite attempts reform the subsidized bread program by introducing a smart-card system. This figure does not include subsidy money spent during wheat harvest in June.

On the revenue side, the government continued to rely on consumption taxes, with duties on goods and services increasing by 13.8 percent to reach LE123.3 billion, almost 46 percent of total tax revenue. Cigarette taxes alone brought in LE30.1 billion. Meanwhile, taxes on income brought in LE94.8 billion, including revenue from sovereign authorities like the Central Bank and the Suez Canal Authorities. Tax income from the state-owned oil company has not yet been calculated.

Overall tax revenue reached LE268 billion in 11 months, compared to LE422 billion anticipated in the 2015/16 budget.

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