• Public revenues are expected to increase by 26 per cent
  • Government projections too ambitious, according to Moody’s

US-based Moody’s Investors Service says Egypt’s revenue targets for the fiscal year 2015/16 are too ambitious.

Cairo’s credit-positive commitment to gradual budgetary consolidation, is more in line with its medium-term goal to achieve a deficit of between 8 and 8.5 per cent of GDP by the end of fiscal year 2019. “However, the government’s current revenue projections are too ambitious,” says a research note released by Moody’s on 15 July.

The budget, which was approved on 21 June, stated that growth has been projected at 5 per cent, which is a slight increase from 4.2 per cent this year.

Public revenues are expected to increase by 26 per cent to reach $80.3bn, but expenditure is expected to hit $116bn, which is up 20 per cent.

The budget is set to limit government expenditure by cutting wages, lowering subsidies and cutting interest payments, which are set to be reduced by 1 percentage point for 2015.

The Moody’s research note goes on to state that while Cairo will be able to curb public spending, projected revenues are “too ambitious”.

It is expected that revenues will fall short of the government’s target. Moody’s attributes this to delays to several tax reforms that were meant to boost revenues. “In particular, the Value-Added Tax reform is still pending and will most likely only be enacted once a parliament has been elected,” said the note.

Also, the government’s policy on fuel subsidies, which started in mid-2014, is set to continue, with the finance ministry’s budget statement saying the efforts to eliminate fuel subsidies will carry on.

To mitigate the effects of subsidy cuts on the poorest segments of society, the ministry says it will continue to provide cash transfers to the most vulnerable. The statement reconfirmed Cairo’s plans to increase spending on infrastructure as well on education and health.

Investment remains the key driver of growth across all industries, with private sector spending taking the lead role.

Stay informed with the latest in the Middle East
Download the MEED app today, available on Apple and Android devices