CAIRO: The Egyptian Center for Economic Studies (ECES) drew two scenarios for covering 50 percent of government’s budget deficit, estimated at 120 billion EGP in FY2015/16.
Egypt’s government is working on slashing the budget deficit to eight percent of GDP in the coming four years, Minister of Investment Ashraf Salman said earlier in April.
The first scenario is based on government’s reliance on its domestic resources through adopting effective tax measures to deter tax evasion and slash tax arrears, which could save 100 billion EGP annually.
It added that real estate tax revenues are estimated at 5 billion EGP a year and Suez Canal dues are expected to reach 40 billion EGP by the end of FY2014/2015.
Meanwhile, implementing a value added tax (VAT) generates 32 billion EGP a year. “These measures would cover 50 percent of the budget shortfall, and saves an extra 57 billion EGP as well.”
The second scenario supposes that the government would rely on loans, grants and deposits.
It assumes that receiving around 20 billion EGP in budget support out of 300 billion EGP in aid would cover around 17 percent out of the 50 percent budget deficit.
The government issues bonds to cover the remaining 83 percent of the 50 percent of the budget shortfall, but this will increase public debt and its service.
According to the ECES, numbers are based on Ministry of Finance Pre-Budget plan for FY 2015/16, and figures based on aid from donors such as the World Bank and the International Monetary Fund (IMF), and support from Gulf Countries.
In its report on the occasion of Article IV consultations’ conclusion in February, the IMF predicted that fiscal consolidation will slash Egypt’s budget deficit below 8 percent of GDP by 2018/19.
In April, the IMF upgraded Egypt’s economic growth forecast in 2015 to 4 percent, from 3.8 percent in its previous assessment.
An IMF mission is scheduled to visit Egypt in June, the fund’s Communications Department Director Gerry Rice said, urging the government to continue important progress made on subsidy and tax reform.
“We hope that the budget for 2015-16 will continue the important progress made on subsidy and tax reform begun last year,” Rice said.
He added: “Egypt needs a strong tax base and savings from subsidy cuts to contain public debt and to free up money to spend on health, education, and infrastructure.”
Since July to March during FY2014/15, Egypt’s budget deficit hiked to 9.4 percent of the country’s gross domestic product (GDP), nearly 2 percent up from 7.3 percent in the same period last year, Finance Ministry said in its monthly report issued earlier in May.
The shortfall amounted to 218.3 billion EGP ($28.61 billion) since the start of the fiscal year in July until the end of March, compared to 145 billion EGP in the same period during the previous FY, according to the report.