The Egyptian Parliament approved on Sunday the draft law submitted by the government for additional allocations worth EGP 70.3bn for the current fiscal year (FY) 2017/2018.
The bill stipulates that these additional allocations will be distributed as a EGP 57bn increase in the interest section of the state budget to meet the increase in the public debt’s interest.
The current FY budget’s estimated debt interest is at around EGP 380bn, but it increased to EGP 433bn following the Central Bank of Egypt (CBE)’s decision to increase interest rates, which means an increase of EGP 54bn.
This comes in addition to the allocation of EGP 2.3bn in the section for other expenses to meet the compensations that the government paid to the residents of North Sinai, as well as to complete the payment of some institutions and international bodies’ subscriptions, which were estimated by the government at EGP 65.972bn in the current FY.
Also, the allocation of a EGP 6bn increase in the band of acquisition of local and foreign financial assets, which was estimated in the current FY at EGP 16.57bn.
The allocations also include a “EGP 5bn increase for the section of payment of local and foreign loans to meet the payment of public debt instalments and the loss of some bonds,” according to the bill.
The estimated payment of local and foreign loans in the current FY is at EGP 265.39bn.
In order to cover these additional allocations in the state budget, the bill stipulates an increase in state budget resources of EGP 7.3bn.
The additional increase in the state budget will be distributed through a EGP 16bn increase in taxes, which were previously estimated at EGP 603.92bn in the current FY budget.
The additional allocations in the state budget included EGP 54.1bn through borrowing.
The changes come as the current FY witnessed some major economic changes that led to the emergence of new commitments in the state budget, including the changes seen in the exchange rate of the pound against the dollar, as the dollar was worth EGP 16 in the budget, whereas, over the past few months, the dollar has stood at EGP 17.7.
The new allocations also come to cover the recently announced increase in the fuel prices.
Last Saturday, Egypt’s new government raised fuel prices by 35-66.6% with immediate effect. The price hikes are part of the government’s economic reform agenda agreed upon with the International Monetary Fund (IMF).
Mohamed Badrah, a banking expert, told Daily News Egypt that the latest increases in fuel prices will lead to a decrease in the budget deficit.
“Maybe there will be a slowdown in decreasing the deficit as a result of the increasing prices of petroleum globally,” he added.
For his part, Sherif Al-Dewany, an economic expert and former executive director of the Egyptian Centre for Economic Studies, told Daily News Egypt that, in six months, if the global demand on petroleum increases, then the prices of crude oil will increase, so Egypt’s government will face a problem in the budget deficit and increase the subsidy bill.
He further said that subsidies are an important factor in the deficit, as well as salaries, explaining that they increased, but not on pace with price increases, so he expects a fall in purchasing power.