With its recently passed budget for the 2011-12 fiscal year, Egypt has established a revised set of ambitious targets for tackling its public expenditures. Having rebuffed aid offers from several international organizations and countries, the move is a sign that the country will steer clear of a rising budget deficit on its own accord, according to OBG. Passed on June 22, the budget set public spending at 490.6 billion Egyptian pounds ($82.2 billion), down 4.65 percent from the 514.5 billion ($86.2 billion) forecast in its draft released earlier in the month. The final budget also cut the deficit for the year from 170 billion Egyptian pounds ($28.5 billion) to 134.3 billion Egyptian pounds ($22.5 billion). This is still 8.6 percent of GDP but is down from the 9.5 percent expected in the 2010-11 fiscal year and a significant drop from the 10.9 percent forecast in the draft budget. In response, Fitch Ratings approved of the country's lowered budget deficit in early July, saying it sends a strong signal to the international community at a politically precarious time. The ratings agency affirmed Egypt's “BB” long-term foreign currency Issuer Default Rating on June 28 and assigned it a Negative Outlook, removing it from Rating Watch Negative. For several months, it seemed as if Egypt would be happy to accept monetary aid from the International Monetary Fund (IMF) and the World Bank to meet what was expected to be an 11 percent budget deficit. In mid-May, for example, the IMF announced that Egypt was looking for $10 billion – $12 billion in financing from international lenders up to mid-2012. In late June the finance minister, Samir Radwan, confirmed this, saying that he expected to make up the deficit through the local markets, grants and funds from friendly countries and international organizations. Also in early June Egypt said it was prepared to accept a $3 billion loan from the IMF, which was to be given over the next 12 months to promote the economy and, in particular, to help decrease the country's deficit. But in an abrupt turnaround at the end of the month, the country said it no longer needed the loan, partially as a result of popular pressure, according to sources quoted by the BBC. The military council also declined to accept $4.5bn in funding from the World Bank that was to have been made available over the next 24 months, with $1bn to be used in fiscal year 2010-11 and another $1bn to be used in fiscal year 2011-12. Egypt has also decided against tapping the international bond market for the time being, given that yields on 10-year Egyptian Eurobonds have dropped to 5.7 percent from over 7 percent in late January. Its last Eurobond, issued almost a year before former President Hosni Mubarak was ousted in February, was oversubscribed and the government had been planning to repeat this success with another long-term issue. However, it could be November or December before Egypt attempts to make use of the international markets again. BM
