Govt to utilize 62% of budget for debt servicing, 51% budget resources from borrowing

The new general budget for the 2024/2025 fiscal year, which starts in July, was presented by the finance minister to the House of Representatives on Tuesday. It allocates over LE3.4 trillion toward debt servicing.

The allocations include loan repayments and interest payments, and they collectively make up 62.1 percent of the total general budget.

Budget utilization is a more comprehensive method to conceptualize annual spending, compared to expenditure which excludes loan repayments and financial asset holdings.

It covers total expenditure across eight categories: domestic and external loan repayments and interest payments; subsidies and subsidized services; grants and social benefits; wages; investments; purchase of goods and services; other expenses; and financial asset holdings. 

Following debt servicing, subsidies, grants and social benefits come second, accounting for 11.5 percent of budget utilization, then by wages at 10.4 percent, and investments at 8.9 percent. Goods and services purchases make up three percent, with other expenses at 2.9 percent. The remaining funds are allocated to financial asset holdings. 

Loan repayments alone amount to LE1.6 trillion, while around LE1.8 trillion earmarked for interest payments. 

The figure below illustrates the increase in loan repayments and interest allocations as a percentage of total utilization in FY 2024/25 compared to the ongoing fiscal year that ends  June 30.

Interest payments in the coming fiscal year are to comprise interest on external debt of LE232.147 billion, and interest on domestic borrowing worth around LE1.6 trillion, making it the largest expenditure category since FY15/16.

Around LE978 billion are allocated for domestic loan repayments and nearly LE628 billion for external loans. 

The government’s loan repayment expenses have risen year-on-year due to the cost of servicing external loans, which exceeds 100 percent. This is primarily due to the March devaluation of the pound, according to the budget financial statement. The value of domestic loan repayments, meanwhile, has dropped by LE39 billion.

As for the budget resources, borrowing in the fiscal budget draft is set to amount to LE2.8 trillion, making up 51.4 percent of resources in the general budget, of the FY 2023/24 budget.

Taxes account for 36.5 percent of the budget draft resources, followed by other revenues at 10.8 percent, proceeds from lending and sales of financial and other assets at 1.2 percent and grants with the smallest share of resources.

Resources for the budget in the “other revenues” category encompass a diverse range of sources, including surpluses from public economic entities such as the Suez Canal Authority and the General Petroleum Corporation, the profits of state-owned companies, revenues from funds and special accounts, judicial fees, fines, government service charges and proceeds from land sales.

Proceeds from lending include installments collected from public business sector companies, economic entities, state budget agencies, as well as asset sales and property rights.

In a statement on the budget financial statement, which left the question of debt until last,  Finance Minister Mohamed Maiet said that the Cabinet aims to reduce the total debt of agencies included in the state’s general budget to 88.2 percent of gross domestic product in the next fiscal year, setting a ceiling of LE15.1 trillion in debt in total.

Debt to GDP was 96 percent for FY 2022/23, said Maiet, noting we expect 90 percent by the end of June 2024.

“We are working to improve debt management and reduce risks related to refinancing by reducing the budget deficit and maintaining an increasing primary surplus,” Maiet said.

He added that revenues from the IPO program would be directed to reduce government debt serving. Though the government laid out a plan to sell 32 companies at the outset of 2023, only a few sales have been completed. 

Maiet also said that efforts would be made to reduce the rate of increasing interest payments by following a policy of diversifying financing sources between internal and external instruments and markets.