The Egyptian budget deficit is set to rise to E£28.1bn ($4.7bn at the mid-2003 exchange rate of $1 = E£6) in the fiscal year running from July 2003 to June 2004, with total expenditure projected at E£159.6bn ($26.6bn) and total revenue at E£131.5bn ($21.9bn). The deficit represents a 61% increase on the budgeted deficit for 2002-03 (MEES , 5 August 2002) with an 11.6% increase in budgeted total expenditure from E£143bn ($23.8bn) in 2002-03 and total revenue climbing 4.7% from E£125.6bn ($20.9bn).
Current Spending Dominates
Current expenditures of E£122.3bn ($20.4bn) continue to absorb the lion’s share of spending, accounting for almost 77% of total. Salaries are a major component of current expenditure, taking one third of total spending and paying for the bloated ranks of the country’s civil service. Debt servicing is the other main feature of current spending, drawing off over 25% of the total. Domestic public debt servicing far outweighs foreign debt service costs by a ratio of 10 to one, but both are projected to rise sharply over the year. Egypt’s external debt rose 2.4% year-on-year from $28.8bn in December 2002 to $29.5bn at the end of December 2003, according to a recent Central Bank of Egypt (CBE) statement. The depreciation of the Egyptian pound since it’s flotation on 29 January last year (MEES , 3 February 2003) has contributed to the rise in foreign debt service costs. This effect has also contributed to the 19% rise in subsidies from E£6.7bn ($1.1bn) in 2002-03 to E£8bn ($1.3bn) in 2003-04. According to 'Abd al-Fatah al-Gibali, a senior advisor to the Ministry of Finance, the increase in subsidies was calculated to cover the rise in import prices and inflation.
Current revenues for 2003-04 are made up largely of taxes, customs dues and sales and service taxes, which total E£70.7bn ($11.8bn) – some 67% of total current revenue of E£105.3bn ($17.6bn). There is a deficit in the current budget of E£17bn ($2.8bn). Other important sources of current revenue are the Suez Canal and petroleum. Canal revenues are projected to increase from E£4,140mn in 2002-03 to E£5,080mn in 2003-04. (For 2003 transit rates – denominated in the IMF’s Standard Drawing Rights and unchanged in 2004 – see MEES , 5 May 2003.) In US dollar terms at the mid-year 2003 exchange rate this suggests a relatively low income projection of $847mn for 2003-04. However, according to Ahmad 'Ali Fadil, Chairman of the Suez Canal Authority, canal revenue rose 32% in 2003 to $2.57bn from $1.95bn in 2002, reflecting a 16% increase in number of vessels using the canal and a 23% increase in tonnage (MEES , 12 January).
EGPC Revenues Dented By Falling Crude Production, Fuel Subsidies
Petroleum revenues from the Egyptian General Petroleum Corporation (EGPC) are expected to fall in Egyptian pound terms from E£4,508mn ($751mn) in 2002-03 to E£4,110 ($685mn) in 2003-04, despite the depreciation of the currency against the US dollar and continued high world oil prices. Egyptian oil output has been declining steadily since a peak of 920,000 b/d in 1995 to average just 628,000 b/d in 2002, and the fall continued in 2003 with production edging down towards 600,000 b/d. Production averaged 618,589 b/d in 2003 according to data just released by EGPC – see this issue. LPG output has also been creeping downward. On a more positive note, gas and condensate output has been on an upward trend in 2003. The gas sector will be given a further fillip in late 2004 with start-up at the SEGAS LNG project in Damietta, while 2005 will see the inauguration of the Egyptian LNG (ELNG) project at Idku. Phase two of the Arab Gas Pipeline to Jordan is also scheduled for start-up in 2005 following the launch of phase one at the end of last July (MEES , 4 August).
Fuel subsidies are also a drain on the revenues the government receives from EGPC. According to an Economic Trends Report published by the US embassy in Cairo in August 2003, subsidized gas deliveries to power plants, which in turn provide subsidized power to customers as well as subsidized LPG for cooking, will cost E£24bn in 2003-04. “These subsidies manifest themselves in smaller transfers from EGPC to the government’s budget, and thus have an indirect but enormous impact on government revenues and the budget balance,” said the report (MEES , 20 October 2003).
Deteriorating Deficit Prompts Ratings Downgrades
The deteriorating state of Egypt’s public finances prompted ratings agency Standard & Poor’s (S&P) to downgrade Egypt’s long-term local currency rating from BBB to BBB- on 22 August last year (MEES , 1 September 2003). The agency cited the “projected deterioration of the budget deficit and the consequent reduction in domestic financing flexibility” as the primary factors behind the downgrade. Steps taken to increase revenues and limit expenditures have not been sufficient or timely enough to contain the deficit and reduce the government’s heavy debt burden, added the agency. The central government deficit, which reached 6.3% of GDP in fiscal 2002-03, is expected to widen to 7.3% in 2003-04 due to slow economic growth, a high public wage bill and sizable interest payments.
S&P’s move was followed by a downgrading of the outlook on Egypt’s long-term local currency from stable to negative by competitor Fitch. Fitch also cited concerns at the state if Egypt’s public finances, noting that fiscal pressures are likely to intensify. In addition, said the agency, the country’s debt has increased to an estimated 86% of GDP at the end of fiscal 2002-03, up from 71% two years before, largely due to the depreciation of the Egyptian pound. Fitch noted that the main factors behind the worsening deficit are growing public sector wages, rising subsidies and contingent liabilities in the state banks and other state enterprises.
Egyptian Budget 2001-04
(E£Mn)
2003-04 | 2002-03 | 2001-02 | |
Current Budget | |||
Current Expenditure | 122,312 | 107,916 | 98,036 |
Salaries | 38,672 | 34,854 | 31,869 |
Subsidies | 8,000 | 6,700 | 6,150 |
Armed Forces | 13,945 | 12,615 | 11,595 |
Domestic Public Debt Service | 30,042 | 26,000 | 22,940 |
Foreign Public Debt Service | 3,163 | 2,400 | 2,260 |
Pensions | 13,840 | 11,552 | 10,267 |
Commodities and Services | 4,736 | 4,481 | 4,210 |
Miscellaneous Current Expenses | 9,914 | 9,314 | 8,744 |
Current Revenue | 105,301 | 97,604 | 94,308 |
Taxes | 32,938 | 31,045 | 29,420 |
Customs Dues | 15,101 | 13,888 | 13,775 |
Sales and Service Taxes | 22,645 | 20,658 | 19,865 |
Other Recurrent Revenues | 6,892 | 6,564 | 6,022 |
Petroleum Revenues | 4,110 | 4,508 | 4,700 |
Suez Canal Revenues | 5,080 | 4,140 | 3,700 |
Other Economic Entities | 658 | 599 | 698 |
Public Sector Companies/Agencies | 2,561 | 2,400 | 2,400 |
Central Bank Revenues | 4,800 | 4,800 | 5,000 |
Other Current Revenues | 10,517 | 9,002 | 8,728 |
Current Deficit/Surplus | -17,011 | -10,312 | -3,728 |
Investment Budget | |||
Investment Expenditure | 20,402 | 20,425 | 15,267 |
Investment Income | 5,438 | 6,333 | 4,094 |
Financed from Reserves | 918 | 2,434 | 577 |
Finances from Net Repayments/Interest | 3,000 | 2,500 | 2,200 |
Local and Foreign Grants | 1,520 | 1,399 | 1,317 |
Investment Deficit/Surplus | -14,964 | -14,092 | -11,173 |
Financed by Foreign/Domestic Credits | 14,964 | 14,091 | 11,172 |
Capital Budget | |||
Capital Transfers (Out) | 16,887 | 14,673 | 13,550 |
Domestic Public Debt Service | 8,400 | 7,000 | 6,250 |
Foreign Public Debt Service | 3,786 | 2,800 | 2,500 |
Transfer Deficit on Economic Agencies | 2,500 | 3,000 | 2,656 |
Other Transfers | 2,201 | 1,873 | 2,144 |
Capital Transfers (In) | 5,759 | 7,538 | 7,698 |
Capital Budget (Cont’d) | 2003-04 | 2002-03 | 2001-02 |
Capital Deficit/Surplus | -11,128 | -7,134 | -5,852 |
Financed by Foreign Loans | - | - | - |
Net Capital Deficit | 11,128 | 7,134 | 5,852 |
Total Expenditure | 159,602 | 143,014 | 126,853 |
Total Revenue | 131,463 | 125,567 | 117,273 |
Gross Deficit/Surplus | -28,139 | -17,447 | -9,580 |
Financed by: | |||
Domestic Savings | 2,759 | 2,538 | 2,598 |
Foreign and Domestic Loans and Credits | - | - | 100 |
Sale of Assets to Finance Investment | 3,000 | 5,000 | 5,000 |
Net Deficit | 22,388 | 9,909 | 1,882 |
Copyright MEES 2004.
