The government will record its widest budget deficit since FY 2018-2019 this yearas the economic crisis triggered by the war in Ukraine hits public finances. The deficit will widen to 8% of GDP in FY 2022-2023 from 6.1% the year, according to updated figures (pdf) in the FY 2023-2024 budget obtained by Enterprise yesterday. The government had initially targeted a 6.1% deficit in this year’s budget, which was revised to 6.8% in March.

The reason: Higher borrowing costs and increased spending to counter inflation. The government has increased public-sector wages, pensions and social protection measures in a bid to protect the most vulnerable households from soaring inflation. Meanwhile, sharply higher interest rates have significantly increased the government’s debt servicing costs. MPs approved EGP 165 bn of fresh borrowing in March to cover the additional costs.

Deficit to narrow next year: The Finance Ministry is now targeting a deficit of 7% in FY 2023-2024, according to the figures. The ministry had initially penciled in a 6.4% deficit in March. The forecast for the primary balance remains unchanged, with the ministry still predicting a 2.5% surplus next year, up from a projected 0.6% this year.

Revenue growth to outpace spending in FY 2023-2024:

  • Revenues to rise 41%: The ministry is targeting revenue of EGP 2.14 tn for the next fiscal year, up 41% from this year. This will be driven by a 31% increase in tax revenues which the ministry expects to record EGP 1.53 tn.
  • Spending up 34%: Spending for the upcoming fiscal year will see a 34% y-o-y increase to EGP 2.99 tn, according to the figures.
  • Interest is the single-biggest expenditure: The ministry expects to spend EGP 1.12 tn on debt service in the coming year, up 45% y-o-y. This accounts for 37% of the government’s total spend during the year.
  • Spend on wages, subsidies, investment all to increase: FY 2023-2024 will see increased spending on wages (15%), commodity purchases (11%), social support (25%), and public investment (56%).
  • As will spend on public services: Allocations to education will rise 19% to EGP 305.2 bn in FY 2023-2024 while health spending will increase 14% to EGP 111.2 bn.

We already know some of the proposed spending breakdown: The ministry plans to increase by 28% its spending on social safety programs and will raise food subsidy allocations by 20% to EGP 108 bn and fuel subsidy spend by 24% to EGP 35.9 bn. The ministry has penciled in oil prices of USD 85 per barrel for FY 2023-2024, up from USD 80 per barrel this fiscal year.

** We should get our first look at the full budget later today when Finance Minister Mohamed Maait and Planning Minister Hala El Said give statements to the House about the government’s spending plans.

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