Minister of Finance Amr El-Garhy said that the targeted budget deficit of the current fiscal year is hard to achieve, but that the government will exert its utmost efforts to reach it.
The government aims to decrease the budget deficit to 9.8% of the gross domestic product (GDP) during the current fiscal year (FY), compared to 11.8% in the last FY.
Credit rating agency Moody’s stated that the target specified by the government is ambitious and unrealistic, and expected the budget deficit to register 12% in the current FY.
El-Garhy said that the government owns everything that is required to realise the targeted deficit. “The matter is very important and we will work on the economic reforms throughout the year in order to achieve the targeted rates,” he added.
Moody’s is expecting the government to fail in the matter, especially after setting the value-added tax (VAT) rate at 13%, instead of the suggested 14%. Hence, the total revenues will decline from EGP 32bn to EGP 20bn.
The agency expects the deficit to register 12% of the GDP by the end of June 2017, due to the reduced tax rate and the exemption of several goods.
The House of Representatives has approved the VAT Law at 13% during the current FY, while it will increase to 14% in FY 2017-2018.
In terms of funds that Egypt aims to attract from abroad, El-Garhy said that he will hold a meeting with the Asian Investment Bank to discuss the obtainment of finances in the coming period.
Egypt officially joined the Asian Investment Bank as a co-founding member in April last year. Fifty-seven countries are involved with the bank, four of which are permanent members at the United Nations Security Council.
El-Garhy said that Egypt is about to obtain a deposit from Saudi Arabia at an initial value of $2bn to $3bn. It is expected to obtain the value of the deposit in a few weeks.
He mentioned that the government is moving on all levels to manage the required finances of the primary instalment worth $6bn from the International Monetary Fund (IMF) loan. The total loan amounts to $12bn over three years.
Egypt also obtained a deposit from the United Arab Emirates last month worth $1bn from the Central Bank of Egypt (CBE) over six years.
El-Garhy said that the first batch of the IMF loan is scheduled to be obtained before the end of 2016.
Egypt had reached an agreement with the IMF to finance part of anan economic reform programme package worth $21bn over three years.
The IMF provided $12bn of the package, while the government has to secure the rest of the funds from external sources.
El-Garhy said that the ministry is still studying whether it will cancel taxes on treasury bonds and bills, but that a final decision had not been reached yet.
The Asian Investment Bank suggested eliminating the tax on the returns of treasury bonds and bills, expecting the move to save EGP 10bn worth of savings. A cancellation would reduce the high interest rates on the current ones. The bank believes that the impact of the tax on the interest rate is greater than its impact on government revenues.
The Ministry of Finance’s mechanism to deal with the continuous increases on the interest rates on the debt tools— especially the five-year bonds that registered 17%.
El-Garhy said that the economic reform programme will resolve this matter.
He added that the interest rate on the state budget deficit depends on the diversification of internal and external funding sources, and the impact of the economic reforms.