The cabinet has approved a debt-targeting draft general budget for the next fiscal year, which looks to build a EGP 1.2 tn primary surplus — or 5% of GDP — according to a cabinet statement on Thursday. Taking this approach will free up “additional credit for debt reduction and social protection,” said Finance Minister Ahmed Kouchouk.

The state’s deficit reduction goals seem unfazed by the war on Iran, with the minister laying a target to reduce the overall deficit to GDP by 1.2 percentage points to 4.9% by the end of the fiscal year. Alongside this, the draft general budget aims to reduce the public debt-to-GDP ratio to 78% over the same period.

The increase in public revenues is projected to increase at a much faster pace than spending. While public revenues will rise 27.6% to EGP 4.0 tn in the budget, expenditures will rise at a slower 13.2% y-o-y pace to a nonetheless larger EGP 5.1 tn.

Why this matters: Considering that inflation looks likely to remain elevated for longer on the back of energy price and other price pressures because of the war on Iran, the projected increase in spending in real terms will be minimal or even contract. With the final two reviews of our program with the IMF and worries of investor cold feet arising from market uncertainty and conflict in the region, the state is making clear that its commitment to balancing the books remains front and center of policy.

Health, education, social protection, and support for production and exports are singled out as “top priorities in public spending.” Kouchouk mentions that EGP 832.3 bn will go towards social protection, up 12% from the year before. The minister also highlights the plan to spend EGP 90 bn on economic support programs, but highlights that “Eligibility for incentives is linked to tangible results on the ground.”

The state is also looking to see EGP 3.8 tn invested in Egypt for the 12-month period in its economic and social development plan for the next fiscal year, which was also given the thumbs up from the cabinet on Thursday, according to a separate cabinet statement. Private investments will make up 59% of the total amount, with the remaining 41% coming from the state.

The state is still sticking with a 5.4% GDP growth target for the next fiscal despite the war on Iran, rising to 6.8% by the fiscal year 2029-30.

Tags: