CAIRO: Egypt's finance minister said he predicts that the country will spend LE 323.9 billion in the 2009/10 fiscal year, which begins today, and incur a deficit of LE 98.9 billion. Finance Minister Youssef Boutros-Ghali said Egypt will take in LE 225 billion in revenue over the next 12 months, down from LE 290 billion in fiscal year 2008/09. Accordingly, the government has cut expenditures from last year's LE 356 billion. The LE 99 billion expected spending gap is likely to mean a deficit of 8.4 percent of GDP. Ghali rolled out the new budget this week, reflecting lower revenue and adopting a more conservative expenditure scheme. Egypt will start implementing the budget today, the start of the new fiscal year, which is a holiday for banks and the stock market. Analysts say that, despite fears, only some of the expected drop in government revenue is likely to be due to a continued slump in two of the governments biggest cash cows: tourism and the Suez Canal. Analysts, though, see the deficit as a necessary evil given the global economic crisis. The spending gap could, they say, help drag Egypt out of its economic slump. "We believe that the new year's budget, while resulting in a larger deficit, should help stimulate demand in the economy, given our expectations of lower private consumption and investment growth in the short term, wrote Reham ElDesoki, a senior economist at Beltone Financial. "We do not believe that the government's fiscal sustainability will be undermined by the higher deficit, she continued, "considering that debt-to-GDP ratios are declining and that the growth in tax bases and revenue-side reforms should help increase revenues, when the effect of the global crisis runs its course. Tax revenue continues to account for the lion's share of government intake. According to Beltone, they're expected to total LE 146 billion for fiscal year 2009/10: LE 59 billion from income taxes, LE 61 billion for sales taxes, and LE 14 billion from customs tariffs. A look at the latest budget also sheds light on how some of the government's lead fiscal challenges have fared over the past year. The government has made a concerted effort over the past year to scale back its spending on subsidies, restructuring several of its long running programs. Representing the work it still has in front of it, the government announced that subsidies would constitute around 20 percent of all the coming fiscal year's spending. Much of its allotted subsidy spending is still dedicated to petrol even though the government announced this month its intention to dramatically restructure the program. In addition to indications that its subsidy programs are still a major drag on the state budget, the new figures reflect a belief by the Minister of Finance and others in the government that more stimulus money will be needed to right the economic ship. The government had already injected LE 15 billion in stimulus money into the economy in November of last year. "The government had promised to inject LE 15 billion into the economy in fiscal year 2008/09, wrote ElDesoki, "mainly in the form of infrastructure spending, to boost growth, pledging to spend up to another LE 15 billion in fiscal eyar 2009/2010 to complement the first stimulus package. Though details on a new stimulus are scant, there are indications that the government would continue its program of investing heavily in infrastructure, which creates employment, promotes spending, and supports commodity prices. The government is trying to use its higher budget deficits strategically. It says it expects its new approach to buoy the country's growth rate which, while still positive, has shrunk in recent quarters. GDP growth hit highs of 7 percent over the last couple of years before falling to 4.3 percent in the first quarter of this year. "Growth had slightly recovered to 4.3 percent in the third quarter of 2008/09, from 4.1 percent in the second quarter of 2008/09. We expect growth to average 3.9 percent in fiscal year 2009/10, compared to 4.5 percent last year, wrote ElDesoki. Challenges still abound, though. In looking at the budget, analysts agree that it's built for a recession. It's heavy on spending, following the widely-held ideology that a push from the government will be necessary to stimulate growth. The trick will be for the government to be aware enough that it changes course and readjusts its fiscal policies once the economic tide shifts and sustainable growth can occur without the hand of the government.
