In its report on the Egyptian economy issued last week, the International Monetary Fund expected an increase in the total deficit in the Egyptian budget during the current fiscal year 2022-2023 - which ends at the end of next June - to 746 billion pounds, compared to 558 billion pounds, according to estimates by the Egyptian Ministry of Finance for the deficit at Issuing the budget with an increase of 188 billion pounds.

The expectation of an increase in the deficit came despite an expected increase in budget revenues by about 99 billion pounds, due to an expected increase in expenditures by about 304 billion pounds over the estimates of the Ministry of Finance.

This leads to an increase in the total deficit to GDP ratio to 7.8%, compared to 6.2% for the deficit achieved in the previous fiscal year.

Government debt interests accounted for the largest share of the increase in expenditures in the current fiscal year's budget, by about EGP 215 billion.

to rise from 690 billion pounds, according to the estimates of the Ministry of Finance, to 905 billion pounds, according to the fund;

Thus, debt interests constituted the largest share among the six chapters of budget expenditures, at a rate of 38%.

This was followed by subsidy allocations at 17.5%, government investments and wages at 17% each, the purchase of goods and services destined to manage the wheel of government agencies and other expenses, most of which go to the armed forces at 5% each.

Government investment decreased by 53%.

The data of the actual Egyptian budget performance during the first four months of the current fiscal year, issued by the Ministry of Finance, confirmed the Fund’s expectations of a growth in the value of the total deficit in the budget by 43%, and an increase in the value of government debt interest by 23%, but it contradicted the Fund’s expectations with regard to both Revenues and expenses, as total revenues decreased by 29% from what was targeted during those months;

This prompted the Ministry of Finance to reduce expenditures by 9% from what was planned.

Within revenues, tax revenues decreased by 25% from what was targeted, grants by 71%, and non-tax revenues, which represent the budget’s share of the surpluses of state-owned entities, including companies, agencies, and banks, by 53%.

On the other hand, within the six chapters of budget expenditures, government investment allocations decreased by 53%, the purchase of goods and services for government agencies decreased by 30%, subsidies decreased by 25%, wages increased by 3%, and other expenses increased by 4%, so that the benefits of government debt are unique to the increase by 23%. %.

As a result, government debt interests accounted for the largest share of expenditures during the four months at 45% of total expenditures, followed by wages at 21%, subsidies at 14%, government investments at 9.5%, purchases of goods and services at 5%, and other expenses at 6%.

Thus, the relative share of government debt interests in total budget expenditures increased to 45%, compared to 33% that was targeted when drawing up the budget, and the relative share of the remaining chapters of budget expenditures declined, as happened with government investments that were targeted at 18%;

to drop to 9.5%, and the support that was scheduled to reach 17%, to drop to 14%.

Negative effect of raising interest and the flexibility of the exchange rate

The performance of the budget was affected by the terms of the new agreement with the International Monetary Fund, which demanded the Central Bank to raise the interest rate to face high inflation, which the Central Bank responded to after a short period during which it tried to fix the interest rate, based on the fact that Egyptian inflation is caused by external factors related to the rise in commodity prices. Imported, and not as a result of increased demand, as the fund sees it, but it acquiesced to the fund’s demand and raised the interest at record rates more than once.

The Minister of Finance stated during the presentation of the budget for the current fiscal year in parliament in early May that raising the interest rate by 1% increases the cost of interest on government debt by about 28 billion pounds, and after his statement, the Central Bank increased interest by 2% last May, then for The same in October, which was reflected in the increase in the value of interest from 230 billion pounds, which was targeted during the first four months of the fiscal year, to 282 billion pounds.

The Central Bank also raised interest by 3% last December, and is expected to raise interest more than once during the rest of the months of the current fiscal year, which ends at the end of next June, which can achieve expectations that the interest value will reach 905 billion pounds during Fiscal year, by fund.

Raising interest affects the budget on the other hand, when it caused an increase in the cost to the industry and a decline in its sales, in light of the state of stagnation in the markets, as well as the tendency of a number of manufacturers to deposit their money in banks, to take advantage of the high interest rates that reached 25% for some certificates. Savings, which leads to a reduction in the tax revenues of those industrial companies and the impact on budget revenues.

The second matter that negatively affected the budget is the Fund’s request to adhere to a flexible exchange rate since the start of negotiations with it last March, which prompted the Central Bank to reduce the value of the Egyptian pound against the dollar more than once, from then until the first half of this month, At the end of last August, the Minister of Finance stated that the value of the external debt owed by the government alone amounted to $83 billion.

And that every one-pound increase in the exchange rate of the pound against the dollar increases the value of the government’s external debt, denominated in Egyptian pounds, by about 83 billion pounds, and the exchange rate at that time was 19.22 pounds per dollar, and the middle of the current month reached 29.61 pounds per dollar, which means an increase in external debt denominated in pounds by about 862 billion. pounds, which affects the value of the installment payments of the external debt.

Selling shares of companies reduces revenue

The fund also pushed the government to sell shares of public companies to Gulf sovereign funds, as a means of pushing the government to implement its demand to privatize a number of companies since its agreement with Egypt in 2016, which was not achieved in previous years, taking advantage of its need to obtain dollar resources, which has already been done since April. Last April, and it is expected to continue during the next five years, as the fund - according to its latest report on the Egyptian economy - expected the proceeds to reach $8.7 billion during that period, which is equivalent to EGP 258 billion at the exchange rates of the middle of this month.

This matter will deprive the budget of obtaining the full profits of those government companies, as percentages of those profits will go to the new buyers, after the budget lost the profits of many government companies that were included in the Sovereign Fund of Egypt, and their profits became transferred to it, and even when it sells shares of it, it will be transferred the proceeds of the sale to him;

Such as Banque du Caire, whose profits in 2021 amounted to about 3.631 billion pounds, and it is preparing to sell a share of it soon.

In addition to the tendency of the political leadership in Egypt to form funds in government agencies, as was stated late last month to form a fund in the Ministry of Housing whose balances amounted to half a trillion pounds, a fund in the Ministry of Health whose proceeds amounted to 70 billion pounds, and a fund in the Suez Canal Authority whose proceeds amounted to 70 billion pounds, and perhaps there are other parties. has made funds that have not yet been announced;

This means that the budget will not receive the surpluses of the economic bodies affiliated to those agencies, as has been the case since 1973.

Where the Ministry of Health is affiliated with several economic bodies, namely: the Comprehensive Health Insurance Authority, whose profits in the fiscal year 2020-2021 amounted to about 15.122 billion pounds, and the Health Insurance Authority, whose profits amounted to 5.402 billion pounds in the same fiscal year, and the Unified Purchase, Medical Supply and Supply Authority, which amounted to Its profits are 1 billion pounds.

The Ministry of Housing is affiliated with economic bodies, namely: the Urban Communities Authority, whose profits amounted to 5.172 billion pounds in the fiscal year 2020-2021, the Building and Housing Cooperatives Authority and the Housing Finance Fund sold by the Ministry of Construction, and the profits of the Suez Canal Authority amounted to 47 billion pounds in the fiscal year 2020- 2021, which is the last published data for the performance of economic bodies.

Thus, the budget loses the surplus revenues of those profitable organizations, while it remains legally obligated to assist the losing economic organizations through contributions and lending, whose value in the current fiscal year budget exceeded 23 billion pounds within Chapter Seven, with spending allocated to it about 30 billion pounds.

The most important impact of all of the above in terms of increasing the budget deficit remains its negative impact on the Egyptian citizen as a result of the lack of appropriations for government investments due to the delay in the implementation of planned projects in the fields of infrastructure, education and health, as well as the decline in services provided in hospitals, schools and government agencies, as a result of the lack of financing for the purchase of necessary goods and services. To perform its work, reduce commodity, food and service subsidies, and limit wage increases in proportion to the high rates of inflation, in addition to increasing the public debt, whose cost will be paid by future generations.