The Egyptian economy cruised safely through two overlapping global crises: the surge in international prices of food and other basic commodities in 2007/2008, and an unprecedented freefall in inter...

  The Egyptian economy cruised safely through two overlapping global crises: the surge in international prices of food and other basic commodities in 2007/2008, and an unprecedented freefall in international markets associated with global recession, which erupted in 2008.  According to FY2009/10 preliminary budget outcomes figures, the Egyptian government successfully outperformed its deficit target of 8.4% of GDP, with the preliminary deficit standing at less than 8.3% of GDP. In the meantime, the total gross debt ratio of the Budget entities was kept steady without significant changes over the past three years within a range of 80-82% of GDP, but down from 121% before starting the current generation of structural reforms in 2004/05, and despite increased public spending which totaled some 3% of GDP in face of the two crises. Unlike the negative developments in many economies, Egypt’s total gross debt ratio declined by 0.6 percentage points in 2009/10 to 80.5% of GDP.   Recovery is progressing much faster than anticipated. Minister of Finance Dr. Youssef Boutros-Ghali said. “We were able to secure a decent growth, and we were also able to outperform our deficit and debt targets in midst of one of the worst systemic global financial and economic crisis known in the modern history”.   Preliminary budgetary outcomes indicate that all income, sales, and customs taxes outperformed their budgeted targets, and have compensated for unrealized one-off revenues and grants worth of some LE 14 billion, as were stipulated in the original 2009/10 budget. Preliminary tax receipts from non-sovereign entities (i.e. excluding Petroleum, Suez Canal, and the Central Bank of Egypt) totaled LE117 billion, or about 11 percent above budget. Total sales tax on goods and services increased over 2008/09 by some 8 percent to some LE 67 billion, on the backdrop of high domestic demand. Customs receipts recorded LE15.4 billion, nearly LE 1 billion above the revised target, and still above last year’s receipts by about 9 percent.  The Ministry of Finance anticipates some savings on wages, spending on goods and services, and social benefits with total of some LE 5 billion, or about 0.4 percent of GDP. This should more than cover a requested additional budget allocation of LE 2 billion to finance higher than anticipated domestic interest liabilities. The Minister of Finance previously announced a temporary deviation from its ambitious budget consolidation program on the backdrop of the negative spillovers from the world economy.   “But this did not keep us from advancing on our structural reforms agenda”. Boutros-Ghali says.  “We are almost finished with modernizing our entire public finance legal and institutional apparatus. During the past 18-20 months, we introduced a modernized Property Tax Law, a PPP Law, and an advance Pensions system. We also introduced few revenue generating measures, including a recent tax reform on cigarettes, steel and cement”.   Egypt committed to bring the debt ratio down to below 60%, which coincides with an overall budget deficit of some 3-3.5% of GDP by FY2014/15. “We are resuming on our consolidation program starting this fiscal year 2010/11. We have already introduced major reforms that will secure fiscal sustainability over the long run. We still have additional reforms ahead of us with respect to subsidies, sales tax modernization, amendments to few articles in the Income Tax Law - but without touching any of its fundamentals, completing modernization of the treasury functions, and delinking long lasting financial inter-linkages between the various public entities; all of which will improve the buoyancy of our revenues system and the management of public funds more efficiently”, Minister Boutros-Ghali says. It is noteworthy that the Ministry of Finance targets an overall deficit for the new FY 2010/2011 of 7.9% of GDP, and expects a debt to GDP ratio for the Budget entities of below 80% by year end.    (Source:Ministry of Finance)