The EGP float caused the government to spend an extra EGP 100bn ($5.7bn) in fiscal year (FY) 2016-17, which was which estimated at a total of EGP 974bn, according to Reuters.
Reuters noted that the increased spending was due to additional cost of importing fuel and wheat prices as well as higher interest payments due to the flotation. “The government will now seek parliamentary approval for the overspend,” Reuters said.
The Egyptian government had to inject additional amounts into the commodity subsidy budget after the local currency lost more than half of its value against the dollar because of the central bank’s decision to fully liberalize the exchange rate, which resulted in the official price of the dollar changing from the level of EGP 8.87 before floating to reach EGP 18 following the flotation.
The increase in expenses is due to doubling the value of imports after the devaluation of the pound, as the government put the draft budget 2016-2017 on the basis of the expectation that the price of the US dollar within the range of EGP 9, but jumped after the flotation of an average of twice that figure.
The biggest impact of the increase in subsidy expenditures is the increase in the cost of petroleum products subsidy. This item alone increased by 188.5% compared to the budget estimates, due to Egypt’s strong dependence on importing petroleum products from abroad.
Debt interest expenses have increased by 29.9% to reach EGP 316.6bn by the end of FY 2016/2017 compared to FY2015/2016, according to data published by the Ministry of Finance in October.
The citizens did not aware the additional expenses going to fuel subsidy, but the government was forced to raise fuel prices for the final consumer by 30% to 45% during the month of flotation to control the increased expenses.
The allocations for food commodities subsidy increased by about EGP 6bn (about $ 340m) over the amount expected by the government for this item during FY2016/2017.