CAIRO: Egypt's budget deficit came to 6.9 percent of GDP for the fiscal year that ended in June, the Ministry of Finance confirmed Monday. This is a big achievement considering the global financial crisis that shook the rate of growth and deficits in many advanced and developing countries, Finance Minister Youssef Boutros-Ghali said in a statement released with the numbers. The figure was lower than the government's initial forecast of 8 percent, and the same as the deficit posted in fiscal year 2007/2008, but slightly higher than the 6.8 percent figure forecasted by Prime Minister Ahmed Nazif in May. The lower deficit number, which represents an 11 percent decrease over four years, was bolstered by a 24 percent rise in revenues, which was higher than the 8 percent increase predicted initially. "Overall, the decline in the budget deficit to the targeted 6.9 percent from the projected 8 percent is a positive achievement for the government, at a time of crisis, wrote Beltone Financial's senior economist, Reham ElDesoki, in an emailed statement. "We believe, however, that the bigger challenge would be in fiscal year 2009/2010, considering it is the year when we expect growth to slow further to 3.9 percent, and the private and household sectors to be fully affected by the domestic and global economic slowdown, she continued. Revenue for the year rose to LE 274.8 billion, of which LE 163 billion were tax returns, the ministry reported. Improvement in tax collection procedures, including the recent implementation of electronic tax collection through the National Bank of Egypt, accounted for much of the rise in tax returns, the ministry said in the statement. Meanwhile, expenditure increased 21.7 percent to LE 343.7 billion, with LE 128.8 billion spent on subsidies, a figure 3.5 percent below the government projection. The government originally planned to target a 6.9 percent deficit, but revised the estimate upwards after approving an LE 15 billion economic stimulus package, and a 16.5 percent increase in civil servants' wages. "We had expected the budget deficit would range between the government's estimate of 6.9 percent and 7.2 percent of GDP, to account for the higher expenditures on the stimulus package, wrote ElDesoki. The increase in revenue brought public debt down to 80.6 percent of GDP from 120.6 percent in 2005. In July Boutros-Ghali denied that Egypt would finance the deficit with foreign bonds, saying that the country's deficit would be managed internally. The ministry said that the government's goal is to reach a 3 percent deficit by 2015, although next year's deficit is expected to reach 8.4 percent as a result of the effects of the economic crisis. Boutros-Ghali said in the statement that he expects to see a sharp drop in the deficit beginning in fiscal year 2010/2011 as the effects of the economic crisis wear off. For her part, ElDesoki believes a drastically reduced deficit may be possible in the future if the economy recovers well and certain reforms are introduced. "A 3 percent deficit could be achievable under the strict assumptions of a strong rebound in economic growth over the next two to three years and the implementation of revenue reforms, including the VAT, new property tax and the pension reform, in addition to further restructuring of energy subsidies, she wrote.
