Egypt’s fiscal years starts on July 1 ends June 30 of the following year. - Egypt Today
CAIRO – 4 June 2018: The Egyptian Parliament approved May 8, the final account of the budget for the fiscal year 2016/17. Egypt Today breaks down the initial aims of the budget, the final report and what the microeconomic indicators mean for Egypt’s economy.
Egypt’s fiscal years starts on July 1 ends June 30 of the following year.
The final account’s report concluded that revenues in the state budget for the fiscal year 2016/2017 were estimated at about LE 669.7 billion and reached LE 765.8 billion when revised.
Goals and aims dissected
When the Minister of Finance first released the 2016/17 budget, it became clear that four main goals are set.
First, the 2016/2017 budget aimed to achieve an economic growth rate of 5.2 percent during FY 2016/2017 with the aim of creating healthy microeconomic conditions for businesses to flourish and for the economy to prosper. Positive economic growth is directly linked to long-term growth within a country, a positive impact on incomes and the lowering of unemployment rates; all of which increase living standards. Higher economic growth is also correlated to higher tax income, meaning that the government would be able to spend more on developing the economy.
To reach this target, the government had to minimise expenses, including money allocated to subsidised products like petrol and gas, and increasing revenues; both actions are aimed to reduce the budget deficit and create more fertile economic conditions.
“This high economic growth will help us reduce the budget deficit, create a considerable number of job opportunities and help the country see an end to its economic crisis,” El-Garhy has said in Parliament June 28, 2016.
Second, decrease subsidies on petroleum products by 4.3 percent to reach LE 35 billion in FY 2016/2017, compared with LE 61 billion in FY 2015/2016. Although this move came as a result of a decline in global oil prices, it also served to reduce the government’s spending, thereby, reducing the budget deficit.
Third, decrease the overall deficit to 9.8 percent of gross domestic product (GDP), compared with the 11.5 percent projected deficit of FY 2015/2016. The aim of this was to decrease domestic and external public debt 97 percent in fiscal year 2016/2017.
Although an advantage of a budget deficit is the government being able to carry out national projects that have long-term positive impacts on citizens, decreasing the deficit, while also maintaining these projects (something Egypt has managed to do over the past couple of years), will decrease national debt and Aggregate Demand (AD).
Commenting on the deficit at the time, El-Garhy had said June 28, 2016, before Parliament that he has high hoped that the budget deficit would be greatly closed, however, he is aware of the grave economic issues that Egypt faced after 2011. “This crisis led the government to borrow a record EGP 2.7 trillion in one year,” El-Garhy said at the time.
Fourth, the budget for the fiscal year 2016/2017 aimed to boost public investments by 50 percent to reach LE 107 billion. Albeit being mentioned last, increasing public investments by 50 percent was one of the main and most important goals of the budget due to the principal factor that public investments play in the economic growth cycle.
Microeconomic Indicators: Reading the signs
Egypt’s budget deficit for the fiscal year 2016/2017 stood at 10.9 percent compared to 12.5 percent for the previous year, an official statement explained May 8.
Gross domestic product growth stood at 4.1 percent for the 2016/2017 fiscal year compared to 4.3 percent a year earlier.
GDP growth in the fourth quarter of the 2016/2017 fiscal year reached 4.9 percent, higher 0.5 percent than the fourth quarter of 2015/16 that had reached 4.5 percent.
On the budget deficit, Garhy said that the deficit is declining by the year and that it dropped from 12.5 percent in 2016/17 to 10 percent in 2017/18 and will further drop to eight percent the coming fiscal year.
The Final Account: Analyzing 2016/2017 in Parliament
According to the presidency statement issued May 8, 2018, foreign investment in Egypt’s treasuries stood at $13 billion in the fiscal year 2016/2017, compared to $1 billion the year before; hikes in interest rates boosted appetite in the country’s domestic debt.
In a bid to ease record-high inflation, the central bank raised key interest rates by 700 basis points since it floated the pound currency in November, encouraging investors to buy up its debt.
The final accounts of the state budget 2016/2017 also witnessed an increase in the volume of public expenditure, which included most of the general budget’s sections. The expenditure on the social dimension increased by 5.5 percent due to increasing wages and compensation, with an estimated LE 225.5 billion, compared with LE 213.7 billion.
In addition, spending on subsidized products increased by LE 47.5 billion—equivalent to 11.1 percent—for the year compared to LE 42.7 billion for the previous fiscal year. The number of Takaful and Karama beneficiaries also increased. Takaful and Karama are cash transfer programs that are part of a social protection net implemented by the government to protect the poor from the negative effects of Egypt’s reform program.
Minister of Finance Amr El-Garhy attributed the improvement in microeconomic indicators of the final accounts of the state budget to the fiscal year 2016/2017 to the increase in revenues that exceeded the increase in the percentage of increase in expenses. The revenues increased by about 34.1 percent, while the expenses increased by 26.2 percent; the investments increased by 57.6 percent. The rate of repayment of domestic and foreign loans increased to 9.4 percent and the rate of repayment of domestic and foreign loans’ interest increased by 29.9 percent, all of which has had a positive effect on the Egypt’s economic situation.
The Finance Minister pointed out that the additions that came within the final account of fiscal year 2016/2017 came as a result of the adoption of a number of key, but difficult, decisions, including the liberalization of the exchange rate and raising the price of oil barrels.
Additionally, the Finance Minister also pointed out that it is important to analyse and study the recommendations of the Committee of Planning, as well as other committees involved, in order to understand all sides of the final account and all areas of the budget; doing so will also allow one to predict future budgets.
How is the discussion in Parliament?
Chaired by Dr. Ali Abdel-Aal, the House of Representatives approved the report of the Planning and Budget Committee on the final account of the state budget, as well as the final account for the Public Economic Authorities and that of the National Commission for Military Production. The final account for the general treasure for the fiscal year 2016/2017 was also accepted.
The case of the transfer of some LE 4 million over previous years to the Endowments Authority under the approved for years under the name unrecorded citizens in the Alexandria Endowments Directorate was also accepted. The Commission did not conduct the proceedings to inform the Public Prosecution if the matter involves a criminal offense.
The final report also pointed out that revenues in the state budget for the fiscal year 2016/2017 were estimated at about LE 669.7 billion, however, that the income section was revised up by about LE 96.1 billion to become the reach LE 765.8 billion.
The final account resulted in a total of LE 1317.7 billion, of which LE 131.9 billion was spent, local and foreign financial assets were acquired at LE 12 billion and local and foreign loans were repaid at LE 273.8 billion.
Total revenues and proceeds of lending and asset sales amounted to LE 664.4 billion, of which LE 5.2 billion were revenue; LE 653.4 billion were borrowed from local and foreign sources. He pointed out that the estimates of the total appropriations for the uses and resources of the state treasury budget for the fiscal year 2016/2017 have been adjusted by an increase of about LE 54.2 billion to become LE 632.1 billion.
The amendments also included an upward adjustment of LE 54.2 billion for borrowing and issuance of securities to finance the budget deficit. The revised figure is about LE 629.1 billion. The final account also concluded total resources amounting to LE 647.9 billion. Public treasury resources include LE 644.2 billion financed by borrowing, bonds and equities from the local and foreign markets, the banking system and others.
Similar to the Finance Minister’s comments, the Committee's report attributed the increase in the value of the amendments in the fiscal year 2016/2017, compared with the economic year 2015/2016, to the difficult but necessary economic decisions taken.
Finally, the report pointed out that the actual deficit in the final account of the fiscal year 2016/2017, which stands at 21.7 percent, is significantly lower compared to the rate of increase in the actual cash deficit of 2015/2016.