Our first proper look at the new budget: Yesterday we got our first look at the Madbouly government’s spending plans and fiscal projections for FY 2023-2024 as Finance Minister Mohamed Maait delivered his budget statement to the House. The minister announced new support measures for households and businesses struggling through an economic crisis — and sought to reassure MPs that the economy remains on an even footing amid anxieties over inflation and the ongoing foreign exchange crunch.

Here’s how the government sees things playing out over FY 2023-2024, according to the draft budget (pdf):

THE MACRO PICTURE-

Growth will be flat: Economic growth will inch down to 4.1% in the coming fiscal year from a projected 4.2% in FY 2022-2023 and 6.6% last year.

Egypt to outperform the global economy, says El Said:Though the projected growth rate is below the initial 5% forecasts, it remains above the 2.8% forecasted for the global economy, Planning Minister Hala El Said told MPs while delivering her statement on the FY 2023-2024 socioeconomic development plan.

REMEMBER- The IMF last month penciled in a 2.8% global growth rate for 2023, down from the 3.4% in 2022, on the back of a slowdown in advanced economies.

Price growth will slow, but we’re still looking at significant inflation: Headline inflation will average 16.0% over the 12-month period, down from a projected 19.6% this year, according to the document. Inflation has hit its highest levels in more than five years this year thanks to the combination of currency devaluation and high commodity prices.

Oil + wheat prices to ease:

  • The government sees Brent crude prices averaging USD 80 per barrel from July 2023 through to June 2024. This is down from USD 94 / barrel this fiscal year.
  • Wheat prices are expected to remain significantly above pre-2021 levels, with US wheat averaging USD 240 per ton over the 12-month period. This is down from USD 424 / ton this year, which saw global prices surge on the back of the disruption caused by the war in Ukraine.

THE DEFICIT-

This year: The government now sees the budget deficit finishing the current fiscal year at 6.4%, up from 6.1% in FY 2021-2022. The government had initially targeted a 6.1% deficit in this year’s budget, which was revised to 6.8% in March. Meanwhile, the primary surplus will inch up to 1.5% from 1.3% last year.

And the next: The government expects the deficit to widen to 7.0% and the primary surplus to increase to 2.5% in FY 2023-2024.

Additional borrowing this year has given us two deficit figures: The budget forecasts an “adjusted budget deficit” of 8.0% this year. This accounts for the EGP 165 bn in fresh borrowingapproved in March to cover debt service and the latest round of wage and pension hikes in the final quarter of the year.

MONEY IN, MONEY OUT-

The taxman expects to have a very good 2023-2024: Revenues will rise 41% to EGP 2.14 tn in the upcoming fiscal year, up from an estimated EGP 1.52 tn this year. Most of this is thanks to higher tax receipts, which are projected to rise 31% EGP 1.53 tn, though non-tax revenues will also increase 75% to EGP 610 bn, almost double that of the past three years.

Privatization to bring in almost USD 2.3 bn next year: The government expects to bring in EGP 70 bn (USD 2.26 bn) through its privatization program next year, under which it hopes to sell stakes in many of the nearly three dozen companies in the privatization program by the end of 3Q FY 2023-2024.

Spending to near EGP 3 tn: Spending for the upcoming fiscal year will increase 34% to EGP 2.99 tn on higher wages, borrowing costs, and subsidy allocations, according to the document:

  • The state’s wage bill will climb 15% to EGP 470 bn;
  • Debt service costs will increase 44% to EGP 1.12 tn;
  • Commodity purchases will rise 11% to EGP 139.4 bn;
  • Public investment will rise 56% to EGP 586.7 bn;
  • Allocations to education will rise 19% to EGP 229.9 bn in FY 2023-24, while health spending will increase 15% to EGP 147.8 bn;
  • Social security spending will rise 31% to EGP 477.5 bn.

SOCIAL SAFETY NET-

Total spending on measures to support at-risk households, businesses and individuals will climb 24% to EGP 529.7 bn during the coming year as the government ramps up spending on subsidies to mitigate the impact of inflation and shore up the economy.

Fuel subsidies to increase: The government expects to more than double spending on fuel subsidies, and has allocated EGP 119.4 bn for the coming year.

But spending on food subsidies will fall: Allocations to food commodities will inch down to EGP 127.7 bn from EGP 130 bn this year, according to the document.

WATCH THIS SPACE- Export subsidies to almost quadruple:The export subsidy will see the highest upward percentage change in next year’s budget to reach EGP 28 bn.

Subsidized loans for industry + agriculture: The government will spend EGP 19.5 bn on subdizing loans to industrial and agricultural companies. This is the first fiscal year the state has picked up the tab for the subsidized loan program after it agreed to take the responsibility from the central bank at the request of the IMF. The central bank previously managed the programs by directing commercial banks to provide loans to qualifying businesses at lower rates.

DEBT-

Debt as a proportion of GDP to rise this year, fall the next:The country’s debt-to-GDP ratio will rise to 96% by the end of the current fiscal year in June, from 87.6% last fiscal year on the back of a weaker EGP and rising interest rates. Meanwhile, the government is now forecasting debt-to-GDP to fall to 91.3% in FY 2023-2024, and is aiming to push the figure below 80% by 2026-2027.

A lot of fresh borrowing: The amount of new borrowing is set to increase by 22% in FY 2023-2024, with the government expecting to sell EGP 2.04 tn in new treasury bills and bonds, according to the document.

WHAT’S NEXT?

The budget debate begins at the committee level:The budget document will be discussed in committees and it should typically go up for a vote at the general assembly before the start of the new fiscal year on 1 July. If the budget doesn’t pass before 30 June, the current budget rolls forward to direct state spending until the new document is passed.

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