CAIRO: Egypt’s draft budget for the 2015/2016 fiscal year (to starts July 1) hints at a slower fiscal consolidation pace than projected under the government’s Medium-Term Macroeconomic Policy Framework, Moody’s Investors said Thursday.
Egypt’s Finance Ministry announced the draft budget for the 2016 fiscal year last Thursday after the cabinet approved it. The draft has yet to be submitted to President Abdel Fattah al-Sisi for ratification.
Ther draft budget projects a fiscal deficit of 9.9 percent of GDP in 2015/2016 FY, down from an estimated 10.8 percent gap in the revised budget deficit of the current fiscal year.
“However, the budget hints at a slower fiscal consolidation pace than projected under the government’s Medium-Term Macroeconomic Policy Framework, and the government’s pre-budget statement for fiscal 2016, which estimated a budget deficit of 9.6 percent of GDP,” Moody’s said in a Thursday report.
It added: “This slowdown in fiscal consolidation, while small, is credit negative because it will translate into a smaller reduction of Egypt’s already high government debt and keep the government’s gross borrowing needs precariously high for a longer period.”
The agency further noted that the current government has taken steps toward fiscal consolidation, predominantly in fuel subsidy rationalization.
In April, Moody’s Investors Service, a global credit rating agency and provider of financial analyses, upgraded Egypt’s issuer and senior unsecured bond ratings to B3 from Caa1, with a stable outlook.
Improving macroeconomic performance, reduction in external vulnerabilities, and ongoing commitment to fiscal and economic reform were key drivers for this upgrade, it said.
“We expect that lower oil prices in fiscal 2015 will reduce the fuel subsidy bill to around 70 billion EGP (around 3 percent of estimated GDP,) compared with 100 billion EGP in the original budget,” it added.
The government expects feul subsidy bill to see a further shrink in the coming fiscal year to around 61 billion EGP, according to the draft budget.