The fiscal deficit for the first half of 2009/10 shows a significant year-on-year increase, mainly as a result of lower revenue, according to figures released by the Ministry of Finance. This suggests that there may be some slippage in adhering to the full-year deficit target of 8.4% of GDP, particularly in light of an additional stimulus package that was approved in mid-financial year and given the delays in levying the new property tax.
The deficit for the July-December 2009 period was equivalent to 4.9% of GDP, compared with a shortfall of 3.5% of GDP in the first half of 2008/09. Total expenditure was 7% lower than in the corresponding period of the previous fiscal year—largely thanks to a sharp fall in subsidy payments, reflecting lower market prices for food and energy—whereas revenue declined by 28% year on year. The revenue shortfall stemmed mainly from a big reduction in tax income and in dividends from state-owned corporations. Income tax from the Egyptian General Petroleum Corporation (EGPC) fell by more than half, reflecting lower prices for Egypt’s exports of oil and natural gas; there was also a modest decline in tax income from the Suez Canal Authority, as world trade declined. Likewise, direct dividends from both EGPC and the Suez Canal fell significantly. There was a big jump in property tax income (from a low base), which would have stemmed from better collection of existing property tax rather than involving any proceeds from the new tax, which is supposed to take effect from January 2010, but has faced administrative and political teething troubles. The government also received £E3bn (US$540m) in new tax income from interest on treasury bills and bonds, reflecting regulatory changes.
On the spending side, a 40% rise in interest payments, stemming from the increase in the government’s total debt stock, was more than offset by the sharp year-on-year fall in subsidies, grants and social benefits (which in the full year 2008/09 accounted for 36% of total expenditure). With world market energy prices likely to be higher in the second half of the fiscal year, the subsidy bill can be expected to edge up. The government has budgeted for subsidies over the full year to be 42% lower than the actual figure in 2008/09, but this target is unlikely to be hit.
Even assuming some recovery in tax revenue in the second half of the financial year, the government is facing an overall deficit of some 9% of GDP for 2009/10. This might mean that there could be pressure on spending plans in next year’s budget, as the finance minister probably has to reckon with higher interest payments, as well as with further delays in securing significant revenue from the new property tax. There is also little prospect of any further cuts in energy subsidies during an election year.
Source: Viewswire