Macroeconomic indicators: Egypt budget deficit to reach EGP 182 billion

Egypt's budget deficit is expected to reach EGP 182 billion in the current financial year. A top level ministerial committee concluded that this is up from the originally projected EGP 134 billion.

The committee formed of the Central Bank's governor, as well as ministers of finance, planning, industry and supply, indicated that foreign borrowing has become a necessity for the Egyptian economy to cover the deficits in budget and the balance of payment along with the drop in international reserves. The borrowed amount will range from USD 10 billion to USD 12 billion.

In June 2011, Egypt declined a USD 3.2 billion facility from the IMF; but Egyptian officials have recently announced that negotiations have restarted for a much larger loan.

The budget deficit for the financial year 2011-12 was forecast to stay at 8.6% of GDP but the recent cabinet announcement pushes it upwards to the tune of 11.7% of GDP.

Mr Farouk El Okda, CBE governor, explained that EGP 48 billion was added to the deficit, EGP 24 billion out of which are urgent. Therefore, the budget deficit will range from EGP 158 billion minimum and EGP 182 maximum, translating into 10.14% and 11.7%, respectively.

Mr El Okda indicated that the surge in deficit comes from an expected drop in tax revenues; highlighted by the decline in profitability of the telecommunications sector and a 30% drop in tax revenues from the banking sector.

Egypt has resorted to local borrowing to cover the funding gap, pushing yields on t bills to surge above 15%. Mr El Okda said that EGP 600 billion has already been issued in government bills, out of which EGP 450 billion was covered by local banks.