The global economic woes emanating from the repercussions of the Covid-19 pandemic and the Russia-Ukraine conflict have cast a shadow on Egypt’s public finances with the state budget deficit widening to 5.15 per cent of gross domestic product (GDP) on the July-February period, data from the Ministry of Finance showed.
The state budget deficit stood at five per cent of GDP on the same period in the fiscal year 2021/22, which ended on June 30, according to Finance Ministry data. The government targets a deficit of 6.7 per cent in the fiscal year 2021/22 and 6.1 per cent in the fiscal year 2022/23, according to Finance Ministry data.
Public expenses rose to LE1.053 trillion ($57 billion) in the July-February period, up from LE941.6 billion on the same period a year earlier.
Wages and other public labor benefits jumped by 11.8per cent between July 2021 and February to LE236.1 billion. Subsidies and social benefits accounted for16.3 per cent of the state’s outlays.
Revenues rose by 9.2 per cent to LE683.4 billion, year-on-year, according to Finance Ministry data.
Hard equation
Historically speaking, the abovementioned figures sound great. Taking a look a few years back, the situation was much worse. The state budget deficit fell from 12.5 per cent in the 2015/16 fiscal year (FY) to 7.4 per cent in FY 2020/21. The objective is to slash the deficit to 6.7 per cent in FY 2021/22 and to narrow it below 5.5 per cent in the medium term.
The general equation is to increase public revenues, while simultaneously decreasing state outlays. Unfortunately, the pandemic’s negative impacts and the global supply chain crunch are taking a toll on the nation’s public finance.
The state has made headways in upgrading management systems of public finance, particularly the automation of all government transactions over the past five years. The enhancement of the cashless solutions has boosted the economy and increased the state’s revenues from taxes.
The financial outlook
Sustained six percent-plus GDP growth in the coming three months may keep the deficit below seven per cent, but we should keep our fingers crossed the global economic conditions won’t worsen. It’s only growth that could fix the budgetary woes.
Here it should be stressed that the state budget, taxation and government spending should be intertwined with the monetary orientation and the nation’s economic objectives as a whole.
Moreover, regional stability will be a key growth driver for Middle Eastern economies, including Egypt, where tourism recovery will be a must to put the economy back on track.
Certainly, the fiscal policy should be in line with the monetary orientation. Both of the monetary and fiscal policies should be integrated and orchestrated according to growth requirements. The fiscal policy should be investment-led to stimulate corporate demand in the medium and long terms.
The recent pound devaluation will increase the cost of imports, especially food staples. Inflation rates are expected to remain high in the coming months on the back of a depreciated local currency as well as the government’s expansionary fiscal policy.
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