Cairo – Mubasher: Research firm Pharos on Sunday revised Egypt’s overall fiscal deficit forecast to 9.8% of the gross domestic product (GDP) for fiscal year 2017/2018 from 10.1% of GDP, following the government’s decision to hike energy prices.
Last week, the Egyptian government announced its second round of energy subsidy cuts, under which it raised fuel prices by an average of 50%, while new electricity prices are set to take effect starting July.
The decision comes as part of the government’s scheme to cut down on its growing budget deficit and in compliance with the requirements put down by the International Monetary Fund (IMF) as part of a three-year $12 billion loan agreement.
Pharos sees the decision as a step that “will help cure the macroeconomic imbalances in Egypt. The timing of the decision was anticipated ahead of the traditional high consumption season in the summer,” it said in a report released Sunday.
Based on the newly-announced prices, Pharos expects the energy subsidy bill to be in line with the government’s budgeted amount of EGP 140 billion, while expenses are forecast to decline to EGP 1.254 trillion in FY17/18 from EGP 1.263 trillion.
“We note that our budget projection factors in an increase in the total spending that reflects a higher than expected inflation rate/exchange rate in FY17/18,” the research firm said in a note.
Pharos forecast a decline in Egypt’s primary budget deficit to 0.1% of GDP in FY17/18 from 1.3% of GDP in FY16/17.
“While these figures remain above the government targets of an overall budget deficit equivalent to 9% of GDP and a primary surplus around 0.3% of GDP in FY17/18, yet it confirms the government’s commitment to reform,” according to the research note.
