Egypt’s Budget Proposal for FY2021/22 to Support Fiscal Consolidation After Pandemic Setbacks: Moody’s – Economics – Business
Egypt’s draft budget for fiscal year 2021/2022 and its targets renew the pre-COVID trend towards fiscal consolidation after the pandemic-induced setbacks observed in fiscal years 2019/2020 and 2020/2021, a Moody’s rating firm said Monday.
Moody’s, which ranks Egypt at B2 stable, said the draft budget projections are broadly in line with expectations.
On March 24, the Egyptian government approved the draft budget for the 2021/2022 fiscal year (which begins in July) before submitting it to parliament.
The draft budget for fiscal year 2021/22 aims to reduce the deficit / GDP ratio to 6.6%, from 7.8% in fiscal year 2020/21, and forecasts a primary surplus of 1.5% of GDP in 2022, compared to around 0.9% in fiscal year 2020/21.
It is also targeting a real GDP expansion of 5.4%, after the 3.3% slowdown in fiscal year 2020/21.
“Budget data for July-December 2020 confirms the effort to preserve government revenues during the pandemic and the gradual reduction in interest payments as a percentage of GDP and revenues. The savings leave room for higher social spending in the new budget and the planned increase in the minimum wage without disrupting overall fiscal consolidation trends, ”Moody’s said.
The Egyptian government is also aiming to increase tax revenue by 2% of GDP over four years by strengthening revenue and customs administration, including through an electronic tax collection system, while preparing new tax policy measures, according to Moody’s.
In addition, Egypt’s shift to targeted income support measures and a move away from regressive consumer subsidies has helped stabilize the country’s fiscal accounts, Moody’s said.
He also added that the Central Bank of Egypt’s (CBE) price stability benchmarks accumulated before the pandemic and its proactive monetary policy response during the pandemic helped anchor long-term domestic returns.
Moody’s noted that the performance of the CBE in this regard reinforces its expectation of a further gradual reduction in the interest bill, adding that a reduction in the effective interest rate underpins the government’s objective of extending the average maturity of the outstanding public debt at five years by the end of the 2023/24 fiscal year, compared to 3.2 years in June 2020 and 1.3 years in June 2013.
“Reduced reliance on short-term debt will reduce the government’s refinancing needs and liquidity risk. The combination of primary surpluses, lower interest charges and a return to higher growth paves the way for a further reduction in the public debt-to-GDP ratio, which is expected to decline by more than 90% over the course of the year. ‘fiscal year 2020/21,’ Moody’s said. .