Subsidies reduction supports Egypt’s credit profile: Fitch

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Wed, 12 Jul 2017 - 01:24 GMT

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Wed, 12 Jul 2017 - 01:24 GMT

Fitch Ratings - Gideon Benari via Flicker

Fitch Ratings - Gideon Benari via Flicker

CAIRO – 12 July 2017: Newly-introduced reductions on energy subsidies in the new budget for the fiscal year (FY) 2017/2018 are positive for Egypt’s credit profile, international credit rating agency Fitch said Wednesday.

As part of Egypt’s economic reform program, the government introduced higher fuel and electricity prices to comply with its agreement with the International Monetary Fund (IMF), aiming to trim a gaping budget deficit.

“Cutting energy subsidies at the beginning of the fiscal year gives us greater confidence in the authorities' willingness to control expenditure and hence in the credibility of fiscal targets,” Fitch stated in a press release.

The budget deficit in FY 2017/2018 is estimated by the government to reach 9.1 percent of gross domestic product (GDP), compared to 10.9 percent of GDP in FY 2016/2017.

Though Fitch forecast budget deficit to register 9.3 percent of GDP, higher than the government’s projection, it expected higher revenues due to the full implementation of the value-added tax (VAT), at 14 percent.

However, the rating agency said that state’s expenditure will exceed budget allocations due to the newly-introduced higher food subsidies, pensions and incentives for public employees.

“Nevertheless, the wage bill is still only budgeted to increase by around 8% in FY 2017/18, which even with attrition from retirements would be significantly below the rate of inflation,” it said.

On the debts, Fitch said that government debt will exceed 100 percent of GDP in FY 2016/2017 final account, expecting it to record 87.9 percent of GDP in FY 2018/2019.

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