Egypt’s Finance Minister promises no new taxes in wartime budget

The state budget for FY 2026-27 will aim to cut the total deficit to 4.9% of GDP, Finance Minister Ahmed Kouchouk said at a press conference attended by EnterpriseAM. The overall deficit in the current fiscal year's budget is expected to reach 6.1% of GDP and rise in 4Q due to the impact of the US-Israeli war on Iran. (The government’s fiscal year runs 1 July - 30 June.)

The key takeaway: Despite ongoing fallout from the war in the Gulf, Kouchouk is not backing away from his longstanding promise of no new taxes, instead signaling that the widening of the tax base is his top priority in the scramble for new revenues. There will be no new taxes next year, Kouchouk said in direct response to a question from EnterpriseAM.

How’s he going to do it? More of the same, really. The Finance Ministry has been pushing for more than a year now to bring more taxpayers into the system. Kouchouk wants to see tax revenues clock in at 14.4% of GDP in the budget cycle starting in July — a 1-percentage-point increase. That represents a 27% increase in tax receipts, which Kouchouk says will be possible if incentive programs bring 100k new taxpayers into the system.

BACKGROUND- The Finance Ministry has been pushing incentives including low, flat taxes for smaller first-time filers in a bid to get more businesses to enter the formal economies. Estimates over the years have suggested that the informal (read: not-tax-paying) economy is at least as large as the formal economy.

One big caveat…

The current draft of the budget was drawn up before the war in the Gulf accelerated — it has oil at USD 75 per barrel and an exchange rate of EGP 47 to the greenback. “We hope the situation stabilizes quickly to achieve these targets,” Kouchouk said, noting that flexibility has been built in by raising contingency reserves to 5% of total spending, up from 3% in the current budget.

Kouchouk is looking to bring in a EGP 5.1 tn budget (+13.2% year-on-year) and says he’s targeting a targeting a 27.6% y-o-y increase in revenues to EGP 4 tn.

Debt targets: The government aims to reduce public debt to 78% of GDP by 2027, with any exceptional revenues directed toward debt reduction. External debt is expected to decline by USD 1-2 bn annually. Critically: Debt service costs are projected to fall to 35% of total state spending from about 50% this year.

Where’s the money going?

Start bracing now for fuel costs to rise: Energy subsidies are on track to come in at EGP 120 bn next fiscal year (down from 150 bn today). Some EGP 104.2 bn of that figure will be earmarked for electricity subsidies, a 39% increase. But fuel subsidies will be cut drastically to EGP 16.5 bn from EGP 75 bn in the current budget — meaning prices will go up at the pumps at the same time as pundits expect oil prices to remain high thanks to the war.

Subsidies are set to rise 12% to EGP 832.3 bn, including:

• EGP 175.3 bn for food subsidies
• EGP 55.3 bn for transfers under the Takaful and Karama welfare programs
• EGP 69.1 bn for to buy local wheat

The government will boost spending on salaries for public-sector employees by 21% — an increase of over EGP 100 bn, raising total spending on wages to EGP 821 bn. Health spending will rise 30% to EGP 369 bn, while spending on education will grow 20% to EGP 422 bn.

Priority industries will get more financing: The budget will earmark EGP 48 bn to support exports and EGP 25.9 bn in concessional financing for industry and agriculture. Additional allocations include EGP 5 bn in incentives for SMEs and the automotive sector, alongside continued support for tourism and hotel capacity expansion.

Egypt will renew hedging contracts for 50% of its energy needs and is exploring the potential expansion of the hedging program to other commodities, Kouchouk added. Egypt is hedging roughly 50% of its petroleum product requirements — excluding gas.

We saw this coming: Government sources told EnterpriseAM last month that the Finance Ministry had entered negotiations to not only renew existing oil hedges but also secure new contracts for wheat and other essential goods. Kouchouk’s comments effectively confirm that the ministry is moving to lock in “war risk” protections as regional volatility continues to threaten fiscal stability.

What to watch for next: The budget moves next to the House of Representatives for committee-level review.