Beltone foresees an 8.4% GDP overall budget deficit in FY 2018/19

Fuel subsidies to hit EGP 120bn, against government target of EGP 89bn as international oil prices rise

Beltone Financial said they expect an 8.4% gross domestic product (GDP) overall budget deficit in the fiscal year (FY) 2018/2019.
In a recent report, Beltone projected further improvement in FY 2018/2019 backed by slower 12.5% expenditure growth with the easing in treasury bills (T-bills) yields. Following the expected interest rates cut in the first half of 2019 which would curb the interest payment bill, expected to rise by 13%.
"We still expect a huge energy subsidies bill at EGP 120bn vs the government's target of EGP 89bn, on higher international oil prices," the report highlighted.
It added that FY 2017/2018 saw a reduction in the fiscal deficit to the GDP to 9.8%, down from 10.9% a year earlier and slightly below their estimates of 10%.
"In nominal terms, the deficit recorded EGP 433.9bn, up from EGP 379.6bn in FY 2016/2017, in line with our estimates of EGP 436.5bn. The budget registered its first primary surplus in 10 years, of EGP 4.4bn, representing 0.1% of GDP, below the government's GDP target of 0.3%, yet against our expectations of a primary deficit of 1.1% of the GDP," it noted.
Moreover, the report said that revenues grew by 18.5% to EGP 781bn, below both Beltone estimates of EGP 818.5bn and a budgeted figure of EGP 843.6bn. "This compares to a 34.3% year-over-year (y-o-y) increase in revenues in FY 2016/2017, despite higher growth in tax revenues to EGP 566bn, rising 38% y-o-y with the spill over of the July 2017, a 1% increase in value added tax (VAT) rate and the annual increase in sales taxes on tobacco. The Ministry of Finance attributed the growth in tax revenues to the increase in income tax, VAT revenues and real estate tax, which surged to EGP 2bn, up from EGP 300m following the cooperation memorandums of understandings (MoUs) signed with both the Ministry of Housing and Justice," it added.
According to Beltone, in line with their view, expenditure remained constrained in FY 2017/2018, growing by 17% to EGP 1.21bn, 4% below estimates with the inflated interest payment bill and rising food subsidies.
Interest payment increased 38% vs a growth of 24% in the FY 2016/2017 to EGP 438bn, and above Beltone's estimates of EGP 391bn, along with high T-bill yields.
Furthermore, subsidies, grants, and social benefits increased by 17.2% to EGP 324.4bn, in line with our estimates, with the rise in commodity subsidies. The report pointed out that, despite petroleum and electricity price increases, the energy subsidies bill rose to EGP 158bn, 5% above their estimates of EGP 150bn.
"Moreover, food subsidies increased by 69.3% to EGP 80.5bn, above our estimates of EGP 64bn and FY 2016/2017 bill of EGP 47.5bn, as mandated by the International Monetary Fund (IMF) backed reform program that entails increasing food subsidies by 1% of the GDP," it added.
Meanwhile, the rising inflationary pressures advocated an increase in pension funds to EGP 52.5bn up from EGP 45.2bn in FY 2016/2017, in addition to increased cash transfers with rising citizen numbers eligible to Takaful and Karama programmes.
The figure for the entire year are not yet provided, however, cash transfers recorded EGP 9.1bn in the first half of 2017/2018, up from EGP 3.7bn a year earlier. On the other hand, the wage bill increased by 4.3% to EGP 235.2bn, in line with Beltone estimates.