Egypt’s budget deficit is estimated to swell up to EGP 197.5bn exceeding previous forecasts, despite growing concerns prompting calls for austerity.
“The budget deficit, which reached EGP 184.8bn in April, accounted for 10.6% of Egypt’s GDP in the first 10 months of the 2012/2013 fiscal year,’’ the Ministry of Finance said in its monthly report issued in May. This was not far off from the ministry’s previous predictions of EGP 185bn that was set for the whole fiscal year ending 30 June.
Last year, the budget deficit reached EGP 134.996bn.
In March, former finance minister Al-Morsy Hegazy said in a conference that the current government plans to reduce the deficit to 5% of Egypt’s GDP by 2016. He had emphasised that this would only be achieved through reform measures.
Egypt is struggling to obtain a $4.8bn loan from the International Monetary Fund (IMF) as negotiations drag amid the country’s failure to meet preconditions. The global lender has stipulated that President Mohamed Morsi must reduce Egypt’s budget deficit and introduce economic and social reforms to be eligible to receive the loan.
“Egypt is struggling to reduce its deficit with a decline in revenues, increasing in public spending, salaries and wages, low foreign currency reserves, and falling tourism and foreign direct investment,” said economy expert Sherif El-Khereiby.
El-Khereiby added that the country has been relying on issuing treasury bills and bonds to finance the deficit, which is affecting Egyptian banks.
“Local banks have increasingly invested in these mechanisms because they’re forced to,” he said.
In March Hegazy had presented a gradual reform programme that included rationing energy subsidies, fighting tax evasion, levying a real estate tax, collecting fees for high-speed internet services, resolving financial entanglements between various ministries, restructuring wages and health insurance and expanding partnerships to finance investment projects.
The country’s foreign debt is also on the rise, despite the government’s attempts to find alternatives. Former Finance Ministry adviser Sami Khallaf announced two weeks ago that Egypt’s foreign debt increased by $8bn, reaching $42bn as of last April, compared to $34.4 the year before. Last March, foreign debt reached $38.8bn alone. Meanwhile, internal debts had also hit an alarming level of EGP 1.4tn, or about $200bn.
This rise in debt is also expected to halt the country’s ability to receive more loans. In 2011, the debt had halved to $35bn despite Egypt continuing to pay an average of $3bn annually in debt fees and payments. Between 2000 and 2009, Egypt’s debt rose by 15%, although $24.6bn was already paid during that period. After former president Hosni Mubarak’s ouster, the rate of external debt recorded was around $33bn.
Egypt has already received loans from several neighboring allies, including ones from Qatar and Libya recently. Qatar has so far provided $8bn as a loan while Libya, on the other hand, offered $2bn without interest for five years and a grace period of three years. Turkey was also among the countries that provided financial support as it lended Egypt $1bn toward the end of 2012. Saudia Arabia on the other hand loaned Egypt $4bn, including $1.5bn in the form of non-refundable grants.
Qatar’s share of Egypt’s official foreign debt, which currently stands at $38.8bn, has risen to more than 16%.
Morsi had previously introduced tax hikes and curbed energy subsidies by 50% in a bid to reduce public deficit and appease the IMF to secure the loan. He further introduced tax increases on a range of consumer goods and services like cement, steel, soft drinks, and cigarettes, among other goods and services. These moves, however, were quickly rescinded after they triggered popular outcry.