Egyptians have to work hard to shrink budget gap
Cairo, September 12, 2012
Egypt revised its budget deficit for the 2011/12 fiscal year sharply higher and its finance minister told Egyptians they would have to work harder to help plug this big gap between spending and revenue.
The deficit was 170 billion Egyptian pounds ($27.92 billion) in the year that ended on June 30 and not the 134 billion pounds projected earlier, Mumtaz al-Saeed said in a statement carried on the Finance Ministry website on Tuesday.
This was equal to 11 per cent of gross domestic product (GDP), not the earlier projected 8.6 per cent, he said, without specifying when the earlier projection was made.
"Citizens must understand the economic situation. The country does not withhold from those with fair demands," he said.
"But those with those fair demands should wait until our economy improves, and this improvement does not come until we get to work and achieve the necessary increase in national income and GDP and reduce the public debt," Saeed said.
The increase in the deficit was caused mainly by greater state wage demands after the uprising that toppled Hosni Mubarak. This also led to a fall in revenue, especially taxes, after foreign investors fled because of security fears and an increase in worker strikes and sit-ins, he said.
The uprising in February 2011 also chased away tourists - another key source of foreign currency and tax revenue.
Fears of a sharp fall in the Egyptian pound is still keeping many foreign investors away, although the new government's redoubled efforts to secure foreign aid could relieve pressure on currency markets.
Egypt's equity market has rallied to its highest since the uprising and yields on short-term government debt have eased from historic highs.
The state payroll grew to 122 billion pounds from a projected 110 billion pounds, while state revenue was 25 billion pounds less than forecast.
Revenue was also hurt by an increase in the bill for petroleum product imports, which cost the treasury $5 billion during the fiscal year, the minister said.
The current budget for the year that began on July 1 projects spending of 533 billion pounds and revenue of 393 billion pounds. This leaves a deficit of 135 billion pounds, or 7.9 per cent of GDP based on the budget's projection of 4.0 to 4.5 per cent economic growth.
"That's going to be another optimistic figure, I think," said Said Hirsh, an economist at Capital Economics. "It could happen if they sorted their problems out." But he also said Egypt faced a weak global economy as well as problems at home.
The finance minister also said the government was forced to borrow from abroad because local banks did not have enough funds to cover the deficit.
"The problem gets more complicated when we know that this borrowing cannot be covered by local sources, in that domestic liquidity in the banking system is not enough," Saeed said.
The local market would only cover 75 billion pounds of the government's borrowing needs, leaving 60 billion pounds, or $10 billion, to be raised abroad, he said. – Reuters