Debt service costs are neutralizing a surge in state tax collection, with interest payments jumping 45.2% y-o-y to EGP 1.06 tn in the first five months of FY 2025-26, according to a recent FinMin report (pdf). These payments accounted for the lion’s share of public spending between July and November, effectively consuming over 96% of the state’s total budget revenues during the period.

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The fiscal tug o’ war: Total expenditure climbed 32.6% y-o-y to EGP 1.88 tn. While interest was the primary driver, the ministry also flagged higher spending on wages — up 9.5% to EGP 263.6 bn — and social protection, which rose 28% to EGP 270 bn due to higher food subsidies and Takaful and Karama transfers. Takaful and Karama are cash-transfer programs that specifically target qualified beneficiaries.

Revenue is also up — but not enough. Revenues grew 33% to EGP 1.1 tn, fueled by a 35% jump in tax receipts to EGP 961.6 bn. The rapid rise in spending, however, more than offset the tax gains, causing the overall budget deficit to widen to 3.6% of GDP, up from 3.1% in the same period last year.

Why it matters: The figures highlight the “fiscal circularity” facing the Finance Ministry even as tax reforms bear fruit. High interest rates mean the government is largely borrowing to pay off old debt. But a “historic” primary surplus — which excludes debt service — jumped to EGP 306 bn. This suggests that if interest rates ease in 2026, the underlying budget would actually be in its strongest position in years.

What’s next: The ministry is working to de-risk the ledger by distributing interest payments more evenly across the fiscal year and diversifying funding sources to move away from high-cost domestic short-term debt.

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