Expect more social spending in the FY 2023-2024 budget: The Madbouly government plans to increase spending on food and fuel subsidies in the coming fiscal year as it aims to cushion the impact of soaring inflation on lower-income households, the Finance Ministry said in a statement yesterday. The ministry will increase by 28% its spending on social safety programs and has raised allocations to food subsidies by 20% and fuel subsidies by 24% in its draft FY 2023-2024 budget, which was approved by ministers at the weekly cabinet meeting yesterday.

According to our math: This will raise social spending to around EGP 455 bn, while EGP 108 bn will be spent on food subsidies and EGP 35.9 bn on fuel.

This comes as no surprise: The government recently announced a EGP 150 bn programof fresh social support, wage increases, and pension hikes in response to inflation, which reached fresh five-year highs last month.

ANOTHER GDP DOWNGRADE-

The Finance Ministry trimmed its economic growth forecast for the second time this month — it’s now targeting 4.1% growth in FY 2023-2024. Ministry forecasts out last week penciled in 5.0% growth for the coming fiscal year, down from 5.5% previously.

Budget targets unchanged: The ministry expects to deliver a 2.5% primary surplus and a budget deficit of 6.4%, targets that are unchanged from last week. The draft budget sees revenues increasing 31% to EGP 2 tn and spending increasing 30.5% to EGP 2.8 tn.

REMEMBER- This fiscal year we could be looking at a growth of somewhere between 4.4%-5%. The Planning Ministry had revised downwards our economic growth expectation for FY 2022-2023 to around 5% down from the 5.5% the Finance Ministry anticipated in the draft budget.

Inflation to finally slow down: The draft budget is expecting inflation rates to sit at an estimated 16%, half of what it currently is. Inflation jumped to a five-year high last month with a 31.9% y-o-y increase on the back of soaring food prices and the depreciation of the EGP.

What’s next: The budget will be passed to the House for discussion ahead of a final vote that has to take place before the start of the next fiscal year on 1 July.

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