(Adds details, background)

CAIRO, June 18 (Reuters) - Egypt's cabinet approved a draft 2015/2016 budget that projects a deficit of 9.9 percent of gross domestic product, narrowing slightly from an expected gap of 10.8 percent in the current fiscal year.

The draft, which has yet to be approved by the president, sees a big increase in expenditure on social welfare programmes.

"Achieving social equality and improving the standard of living for those in need is the focal point of this budget," Finance Minister Hani Qadri Dimian said in a cabinet statement.

The draft budget projects a total of 431 billion pounds in expenditure on social programs, or about 49 percent of total public expenditure and a 12 percent increase on the current fiscal year.

Growth was projected at about 5 percent versus a projected 4.2 percent in the fiscal year ending on June 30.

Projected public revenues stand at about 599 billion Egyptian pounds ($78.6 billion), a 23.2 percent increase. Projected expenditure is 872.6 billion pounds, up 18.5 percent.

The budget also earmarks 38.4 billion pounds for bread and commodities subsidies.

The projected deficit of 281 billion Egyptian pounds compares to 240 billion pounds that was approved in the 2014/2015 fiscal year budget.

Political turmoil since the 2011 uprising that ousted Hosni Mubarak has hurt Egypt's economy and hit investor confidence. The government has been walking a fine line between trying to cut its deficit whilst luring investors and restoring growth.

"The economic situation is witnessing gradual improvement and this is reflected in the increase in growth...and the ratings by international agencies," Dimian was cited as saying in the cabinet statement.

But he also said "responsibility must be borne towards completing economic reforms".

Cairo has received billions of dollars in grants, loans and petroleum products from Gulf Arab allies since former army chief Abdel Fattah al-Sisi overthrew President Mohamed Mursi in 2013 following protests against his rule.

The aid has proven to be a lifeline for Egypt's economy but the government is also working on implementing long-awaited reforms.

The draft budget earmarked 2.2 billion pounds in grants.

Egypt introduced painful reforms last July, slashing energy subsidies by 40 billion Egyptian pounds, which has led to steep rises in the price of fuel and electricity.

Projected revenues from taxes in the current draft budget stood at 407 billion Egyptian pounds. Spending on public investments stood at 75 billion pounds.

The cabinet statement said the government targeted decreasing the deficit to 8.0-8.5 percent of GDP in 2018/2019 as well as lowering public debt to 85 percent of GDP.

($1 = 7.6250 Egyptian pounds)

(Writing by Yara Bayoumy; Editing by Angus MacSwan) ((yara.bayoumy@thomsonreuters.com; tel: +202 2578 3290; Reuters Messaging: yara.bayoumy.thomsonreuters.com@reuters.net))

Keywords: EGYPT BUDGET/