Despite slow growth, Finance Ministry sounds optimistic note

The Ministry of Finance’s monthly report for August shows some positive indicators, but underscores, yet again, the treasury’s reliance on foreign aid and public debt.

The Ministry has not yet published preliminary fiscal data for the 2013/14 financial year, which ended in June, but promises a report is “in the final stages of preparation and will be published when finalized.” In the meantime, this month’s release covers July 2013 to May 2014, representing the eleven months following the ouster of former President Mohamed Morsi.

As of May 2014, Egypt’s fiscal deficit reached LE189.4 billion, or 9.3 percent of Gross Domestic Product. At the same time last year, the deficit recorded LE204.9 billion, or 11.7 percent of GDP.

Government expenditures hit LE519.7 billion between July 2013 and May 2014, up by 9.6 percent from LE 474.3 billion in the same period a year earlier. This increase was largely driven by increases in employee wages and compensation, with rose by LE28.9 billion to reach LE151.9 billion, and rising interest payments, which reached LE139 billion, an increase of LE14.3 billion compared to the previous year. This increase came despite decreases in spending on subsidies, grants and social benefits, which stood at LE140.7 billion, down by LE9.4 billion.

On the revenue side, the Ministry recorded LE337.8 billion, compared to LE271.3 billion the previous year. This figure includes LE51.5 billion in grants, including LE21 in cash from the Arab Gulf, as well as an allocation of LE29.7 billion worth of dollar denominated deposits from the Central Bank. Taxes on domestic salaries amounted to LE17.5 billion, while taxes on industrial and commercial profits amounted to LE30.6 billion, including settlements made in December 2013 and January 2014. Property taxes, largely on Treasury bills and bonds reached LE14.2 billion.

Meanwhile, total government debt, both foreign and external, rose to LE1.9 trillion, or 93.9 percent of GDP, by the end of June 2014. The previous June, that figure stood at LE1.6 billion, or 93.8 percent of GDP.

Looking Ahead

Despite real GDP growth of just 1.6 percent year-on-year for the first nine months of the 2013/14 fiscal year, compared to 2.3 percent in the same period the year before, the Ministry predicts that economic growth will accelerate in the coming quarters. The report points to quarterly data: the third quarter of the 2013 fiscal year recorded 2.5 percent growth, compared to 2.2 percent in the same quarter last year.

According to the Ministry’s August report, average annual urban inflation reached 10.1 percent for the 2013/14 fiscal year, up from 6.9 percent last year, while the month of July saw annual inflation hit 10.6 percent. However, on Monday, state statistics agency CAPMAS revised the July figure upwards to 11.04 percent to reflect the impact of fuel subsidy cuts. Since GDP growth has been driven largely by consumer and public spending, it may be difficult for growth to compensate for soaring inflation enough to see a sustained increase in real GDP.