Fiscal Deficit On The Rise

Egypt's budget spending has increased sharply over the past two years as the government has made supplementary allocations to food and fuel subsidies so as to avoid passing on the full costs of the escalation in commodity prices to consumers. However, the government has managed to keep the deficit within the target range thanks to the strong revenue performance, which has arisen both from the robust rates of real GDP growth, averaging about 7%, and from improved tax collection.

According to final budget outturn figures issued by Mr Boutros-Ghali earlier this month, the fiscal deficit in 2007/08 was E£59bn, equivalent to 6.8% of GDP, compared with E£54.7bn and 7.5% of GDP the previous year. The primary deficit, excluding debt service payments was about 1% of GDP.

He said that total revenue rose by 21.2% year on year to E£218bn, with tax and customs revenue increasing by 20.2% to E£137.4bn and non-tax revenue (including Suez Canal dues, petroleum surpluses and proceeds of the sale of 3G telecoms licences) rising by 23.1% to E£81.1bn. Income tax rose by 15% to E£76bn, while sales tax proceeds increased by 30.9% to E£40bn. Customs revenue rose by one-third to E£14bn.

Total expenditure in 2007/08 increased by 25% to E£277 (32% of GDP) from E£222bn (30.4% of GDP) the previous year. Subsidies became the largest category of budget spending, rising 56% year on year to E£84.2bn. This sum included E£60.3bn for fuel and E£16.5bn for food. The public-sector wage bill went up by 19% to E£62bn.

Although the government has managed to keep the fiscal deficit under control, Egypt has the highest inflation rate in the Arab world. The most recent official figures show that consumer prices rose by 22.2% year on year in July. The tight monetary policy adopted by the Central Bank of Egypt (which hiked interest rates in August for the fifth time this year) and the stabilisation of commodity prices will probably bring the inflation rate down below 10% on average in 2009.